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Fries With That?

Larry Sayler, 12:45 am ET

MY MCDONALD’S INDEX is the way I keep track of long-term inflation. I worked at McDonald’s in 1971 and 1972, while in high school. The menu was much simpler back then: hamburger, cheeseburger, Big Mac, fish sandwich, small and large fries, coffee, small and large soda, and shakes—one size only.

We didn’t have Quarter Pounders, chicken sandwiches, salads, lattes, mochas, frappes, smoothies, sundaes, McFlurries, super-sized drinks, meal combinations or Happy Meals. The food was not made fresh. Sandwiches were available in warming bins. Customers gave us their orders. Our job was to grab their food and drinks as quickly as possible.

Back then, our cash registers didn’t determine how much customers owed. We totaled it in our head, mentally added tax, and told the customer the amount due. We entered the total in the cash register, took their money and, without the help of a machine, calculated their change. I still remember the prices of almost every item on the entire menu.

I’ve developed two McDonald’s indexes. The first is my Big Mac index. Back then, a Big Mac was 57 cents. Today, I paid $4.73 for a Big Mac at my local McDonald’s. Over 50 years, the cost of a Big Mac has increased just over eightfold.

My second McDonald’s index is a bit more complicated. Back then, McDonald’s had an advertising slogan— “two hamburgers, fries, and a Coke . . . and change back from your dollar.” It was true.

Hamburgers then were 20 cents, small fries were 20 cents, and a small soda was 15 cents. Two hamburgers, fries and a soda came to 75 cents. Add three cents in tax for a total of 78 cents. If you paid with a dollar bill, we gave you 22 cents in change.

Today, at my local McDonald’s, two hamburgers, a small fries and a small soda come to $5.56. For this meal, prices have increased a bit more than sevenfold in 50 years.

Twice recently, I’ve had the opportunity to speak with 12th grade students. I get their attention by telling them that I’m going to give each of them $100. But there are two catches.

Before I explain the catches, I ask them to imagine that their grandparents are going to celebrate their impending graduation by taking them to McDonald’s. I ask them how much it will cost for the three of them to eat there. Most say it will cost $15 or $20.

I then give them the details of my offer. I will give them $100 in about 50 years—when their first grandchild is about to graduate from high school. The first catch: I will need to be alive in 50 years to give them the money. The second catch: Even if I am alive, $100 probably won’t be enough to buy a meal at McDonald’s for three people.

Using my McDonald’s index, I explain that if prices have increased sevenfold or eightfold over the past 50 years, we shouldn’t be surprised if prices increase another sevenfold or eightfold over the next 50 years. If it costs $15 or $20 for three people to eat at McDonald’s today, it’ll probably cost $100 to $150 for their modest celebration 50 years from now.

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James McGlynn CFA RICP®
James McGlynn CFA RICP®
17 days ago

Third catch- will McDonald’s be around in 50 years!

JeffreyK
JeffreyK
17 days ago

I, too, worked at McDonald’s in 1972; $1.60/hr. Still remember all the prices, and I’m sure my kids are tired of me saying, “The price used to be..” And I remember my dad (born 1920) saying exactly the same thing about what he thought prices should be.

Ron Manuel
Ron Manuel
17 days ago

I assume you’re familiar with the better known Big Mac Index–“THE BIG MAC index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level.” In Turkey, it currently costs $1.86 for a Big Mac. In Switzerland, it is $6.98

David Powell
David Powell
17 days ago

That’s an interesting approach for making inflation real for young folks. Am curious: How have they responded?

The Economist also uses a Big Mac index, to track currency differences between countries: https://www.economist.com/big-mac-index

Larry Sayler
Larry Sayler
16 days ago
Reply to  David Powell

Great question – The students are at first incredulous that a McDonald’s meal for three people might cost $100 to $150 fifty years from now. But as they think about it, they realize my logic. It is a real eye-opener for them.

Philip Stein
Philip Stein
17 days ago

I worked at Taco Bell when I was in high school in 1966. In those days, a taco cost nineteen cents. Today, $1.69.

William Perry
William Perry
17 days ago

I also worked at Mickie D’s twice, once in high school in 1966 and again starting in 1974 after my time in the Army while I was going to large state university funded mostly by my GI bill benefit. I was a cook and so I do not remember the prices the way you do.
The financial memory that sticks with me was in 1974 everyone outside of management was typicality paid the $ 2.00 per hour minimum wage, and a simple sign in the window would give the store immediate new employees so raises were rare and when they occurred it was often because the minimum rate had gone up a dime or a nickel.
My observation is that while official minimum wage rates have not kept up with price inflation is seems likely to me the actual purchasing power of current wages being paid an entry level unskilled worker in 2022 are mostly equivalent or less than my 1974 buying power of $2.00 per hour.
Helping young people make informed life, career and financial decision is a worthy use of our time by those of us in the fourth quarter of life and I applaud you and others who do do.

Chazooo
Chazooo
17 days ago

A much more relevant index to most people than the official CPI.

mike schellenberger
mike schellenberger
17 days ago

Great food for thought! We could learn more if there was a brief explanation on how to do the math calcs.

Larry Sayler
Larry Sayler
16 days ago

Philip does a good job explaining how to calculate the annualized implicit inflation rate.

If you are asking how I calculated the “eight-fold” or “seven-fold” increase –

Big Mac – $4.73 / $0.57 = 8.3. Thus, Big Mac’s are a bit more than eight times as much as they were 50 years ago.

Meal – $5.56 / $0.78 = 7.1. Thus, this meal is seven times as much as it was 50 years ago.

If the meal for three is $15 or $20 today, multiply by 7 or 8 to get a reasonable estimate of a meal for three in fifty years. Looks to me like $100 to $150 is a reasonable estimate.

Obviously LOTS of factors affect this, but I still think it is a reasonable estimate. Could be less, could be more.

Last edited 16 days ago by Larry Sayler
Philip Stein
Philip Stein
17 days ago

This is how I understand the calculation using the example of a 19-cent taco in 1966 costing $1.69 today, 56 years later:

FV = PV (1 + r)^n

1.69 = 0.19 (1 + r)^56

log(1.69 / 0.19) / 56 = log(1 + r)

0.01695 = log(1 + r)

r = 10^0.01695 – 1 = 1.0398 – 1 = 0.0398

According to this calculation, the average annual inflation rate of the price of a Taco Bell taco over those 56 years was 3.98%.

To verify:

0.19 * (1.0398)^56 = 1.69

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