The iPod International Currency Index

Snad writes "The BBC is reporting that an Australian bank has adopted the price of Apple's iPod as a means of tracking international currency values. Similar to The Economist's Big Mac index, this 'iPod index' tracks the price of a 2-GB iPod Nano around the globe and uses purchasing power parity to determine relative currency value. A sample quote: '"The index suggests that the US dollar has potential to appreciate against a range of major currencies, with the Australian dollar about 15% overvalued against the greenback," said Craig James, Commonwealth Securities' head economist.' The cheapest place to buy an iPod is Canada — $144 (but Hong Kong and Japan are almost as cheap); the most expensive is Brazil — $327."

Comments

ITMS currency index is much simpler

[Anonymous Coward]

1 song = 1 $ = 1 = 1 £

Re:ITMS currency index is much simpler

[eldepeche]

And in the UK it's actually £0.79, not £0.99.

Won't work

[Attaturk]

IANAE but there's a crucial difference with other pertinent indices. Bic Macs as are consumed. Oil, by way of another example, is also consumed. Apple's portable music players (ffs) are sold (or given away) and then just used like any other non-consumable, non-disposable commodity. I really can't see how this is anything other than a gimmick.

Re:Won't work

[Duds]

Plus this seems to ignore sales tax.

And indeed uses RRPs by the look of it.

If it shows the UK currency overvalued by 17% the actual PRICE of an ipod is the same.

Re:Won't work

[vhogemann]

As such, taxing imports is a good way to help local economy.

I'm sorry to disagree with you.

How overtaxing things that will never be produced at Brazil, and that have NO local competition help the economy? Last time I checked, every single DAP out there comes from somewhere at Asia.

The government is just making it harder for brazilians to have access to technology...

And yes, I'm from Brazil. And it suck to be forced to pay double the price for every piece of IT equipment, sometimes MORE.

Re:Won't work

[TheJasper]

As a result, the price of an iPod after taxes should be the same regardless of where it is sold, argues Commonwealth Securities. Does it ignore sales tax? the above quote suggests taxes are taken into account. However none of the linked articles seems to go into how the price is derived. For that matter, the US charges a sales tax which differs per state, and other countries charge a VAT which is applied before sale. Of course, I only skimmed the article, but some people here need to do even more than that (see below).

But just like The Economist's Big Mac index, the CommSec iPod index is a light-hearted look at the pricing of a good across a range of countries. Just like the Big Mac index, it may have use for currency analysis, but time will tell. So why are we all taking this so seriously? It may or may not be useful, but it sure is fun. If you plan on using this to plan your career in currency exchange, you do so at your own risk. The Big Mac index was a joke, but it turned out to be useful. This may as well, though you shouldn't hold your breath.

If nothing else it shows the disparity in purchasing power for (high end) consumer electronics or luxury products. Don't tell me the iPod is not a luxury product in your country.

IANAE, but I doubt most people here are either. As far as I read the article it isn't a serious index. OK the BBC article doesn't make this clear, which says something about the BBC. The CommSec article is clearer and perhaps some people here would've done good reading it before going of on a rant about how ridiculous it is.

In economics oftentimes you just have to try and track things to see what effect they have. You get weird correlations sometimes, and sometimes they are meaningful. Sunspot cycles seem to be correlated to economic cycles, and a friend of mine found a (weak) correlation between the weather in New York and the NYSE index. Does this prove anything? I don't have an answer. However economics is as much about weirdness as it is about math.

Re:*Yawn*, Slow newsday?

[antifoidulus]

Uh oh Apple! Some guy on the internet said your player sucks, better listen to him or else! Ignore the millions of sales every quarter, they obviously never met this guy on the internet! The INTERNET!

The iPod is useless as a scale

[ElGanzoLoco]

This is not very useful: the market value and intended targets of the iPod change from country to country.

You can safely assume the shiny gadget is a consumer good in the US, most of Europe, Japan, and other similarly rich countries. But in much of the developing world, it is a luxury item that local distributor(s) can afford to overprice (compared to its value in other markets) because they are only going after the 0,1 percent of wealthy people that can afford the item regardless if it costs 250 or 450USD. For this to make any sense, of course, you need to keep in mind that in many developing countries, there is no such thing as a large middle-class.

The Economist's Big Mac index is flawed for another, similar reason: going to Mc Donald's is considered cheap and unfashionable in Paris, France, while it the most hype thing to do in Cairo, Egypt, or Guangzhou, China. So despite the fact that you are talking about the exact same BigMac & fries, you are not considering the same product, because its perceived value changes considerably from place to place. I think I remember reading an Economist article that aknowledged this.

Re:The iPod is useless as a scale

[rm999]

This is from the economists' most recent article using the big mac [May 25th 2006]:

"The index was never intended to be a precise predictor of currency movements, simply a take-away guide to whether currencies are at their "correct" long-run level. Curiously, however, burgernomics has an impressive record in predicting exchange rates: currencies that show up as overvalued often tend to weaken in later years. But you must always remember the Big Mac's limitations. Burgers cannot sensibly be traded across borders and prices are distorted by differences in taxes and the cost of non-tradable inputs, such as rents."

Any PPP calculation will be flawed between different countries due to cultural differences (the french probably prefer croissants to bread), but IMO the economist was smart in using McDonald's research of what their product is worth in a given country to assess that country's currency. My guess is Apple's index means less because they fear arbitrage of their product (ie. people shipping cheaper ipods from third world countries to the USA)

Stupid idea

[sfogel]

The Big Mac index is so good because the price of the Big Mac involves a little bit of everything: tradable products (meat, bread, etc), labor, services, rental, etc. It is cheap, and usually not subject to any special taxes. The iPod is an imported luxury good, and thus its price is subject to arbitrary decisions by dealers and governments. No good.

Brasil's prices suck!

[Wooky_linuxer]

Most expensive nano, most expensive PS3 (the 60GB version was R$8000 at launch - thats 3270 fscking dollars!!!!) And this in retail stores, not eBay or similar. Probably most expensive Macbooks as well. You know, we are all filthy rich here, so we don't mind paying such outrageous prices. Sigh.

Re:*Yawn*, Slow newsday?

[91degrees]

Unless you consider a Big Mac to be fine cuisine, and American Idol to be the most insightful television show available, sales aren't really a good indicator of quality.

An iPod index makes no economic sense

[patiwat]

The reasoning behind the Big Mac index is that for the most part, McDonalds tries to produce the burgers using the cheapest available inputs. Thus, the Big Mac index is representative of the cost of a bundle of food-related inputs. Much of the time, this means locally produced inputs. A country with low cost beef and wheat will have relatively cheaper Big Macs, whereas countries with expensive beef and wheat (or high input tariffs) will have relatively more expensive Big Macs. In the long run, a country with cheap inputs will tend to export to countries with expensive inputs, thus weakening the currency of the importing nation and strengthening the currency of the exporting nation.

The idea of an iPod index makes no economic sense. The reason that an iPod is expensive in Brazil, India, and Thailand isn't because labor, LCDs, and Flash Memory are expensive in those countries. An iPod costs the same to produce no matter where it is sold. The only main difference is in import duties and sales taxes. Import duties and sales taxes have nothing to do with the long-term direction of a country's currency. This index is a waste of time.

Not That Simple

[jonadab]

You really can't calculate a meaninful exchange rate based on the price of a single product, unless the economies of the two nations are inherently similar. Yes, MKs in Africa figure exchange rates based on the price of Coca-Cola, but that's between countries with more-or-less the same economy, and it's inherently an informal calculation anyhow. You can't meaninfully compare the currencies of the US and Australia that way, much less the US and Brasil.

The problem is that different kinds of goods and services are more or less expensive in different economies. You can get VERY different ideas about the exchange rate, depending on which product you look at. In one country, technology is cheap but labor is expensive. In another, technology is unaffordable but labor is cheap. In another, both technology and labor are expensive but food is cheap. If you compare currencies based on one product, you can get yourself quite seriously confused.

Exchange rates are also driven by trade balances, and just because one US dollar can be exchanged for eight billion Ubledubgongian Frankls does not mean that a product worth one dollar in the US will cost F8 billion in Ubledubgong. It may only cost 250 Frankls. Going the other direction, just because exchanging one US dollar only gets you 50p in England does not necessarily mean that 50p has the same purchasing power as $1 would have in the US. People who don't understand economics tend to assume it works that way, but it doesn't.

iPod vs. Big Mac Index

[NoSuchGuy]

The Big Mac Index is more suitable because it is a local index.

Because for a Big Mac you look at the local costs and industries.
(packaging, local labour cost, local agriculture (salad, meat...))

For an iPod you only measure the chinise output (packaging, chinese labout cost, chinise raw materials ...) and the local reseller cost and worldwide shipping cost.

Re:iPod vs. Big Mac Index

[beathyate]

We are an Apple reseller in Peru. Since we don't have local Apple offices we buy the iPods in the US and then import them. The discount is pretty much 8% for all countries that need to import them this way, then we pay shipping to Peru, 12% ad-valorem tax, add a 10% margin, and we have 19% sales tax.
Brasil has way higher ad-valorem, but has local Apple offices.
The US has only a 5%-8% sales tax.
Mexico has 0% ad-valorem since the consider the iPod a hard drive, and 15% sales tax.

So there are a lot of thing to consider... I agree, the Big Mac index should be more accurate.

This is Slashtap

[shigelojoe]

This site goes to 11.

Re:*Yawn*, Slow newsday?

[shplorb]

Did you know that ipods only support 2 video formats (both of them MAC formats)

Last time I checked, the formats were MPEG4 and MPEG4-AVC/H.264 - hardly "MAC-only" formats!