Using the data already analyzed in my previous blogs, a study on the price increments over the 5 years period of time from 2007 to 2011 for the Big Mac™ Price based on US Dollar from  and the Gold Price from , as we can see it in the below table:
Table 1 : Big Mac™ Price  and Gold Price  from 2007 to 2011
As we know that price increments over the time usually caused by the inflation, which according to  means “the ongoing fall in the overall purchasing power of the monetary unit” and according to  can affect the economic comparison of alternatives. With the Monthly Inflation Rate from , taken from the US CPI (Consumer Price Index) we can retrieve the data for the year 2006 to present in Table 2, as below:
Table 2 :Monthly Inflation Rate  from 2006 to 2011
The plotted Inflation Rate with its control chart is in Figure 1 :
Figure 1 : The Monthly Inflation Rate  and its Control Chart from 2006 to 2011
The selection criteria will be:
Using the data period from the year 2006 to 2011 for the Inflation Rate (accumulative per year) and from 2007 to 2011 for the Big Mac Price and Gold Price, using average values for price of selected data.
Calculate the Real Dollar (R$) based on the Big Mac™ Price, Gold Price and US Inflation Rate (f) for all selected Countries/Area.
Compare the result with the Actual Dollar (A$) and the actual price changes
Analysis and Comparison of Alternatives
The Real Dollar calculation is following the formula from :
Where : R$ = Real Dollar
A$ = Actual Dollar
k = Time Period
b = Base Time Period
f = Inflation Rate (yearly rate)
Gives us the following result:
Table 3 : Calculated Real Dollars R$ for the Big Mac™ Price  and Gold Price  from 2007 to 2011
To compare the result with the actual price changes in percent, as we can see below is showing negative values that indicates a price decrease as an impact of the Global Economic Recession in 2007 – 2008. The baseline year is the year 2007 and the increments are calculated on yearly basis.
Table 4 : Changes of the Big Mac™ Price  and Gold Price  from 2007 to 2011
Figure 2 : Accumulative Increase of the Big Mac Price and Gold Price from 2007 to 2011
Selection of the preferred alternatives
The absolute values for the price difference and calculated Real Dollar are listed in Table 5 and Table 6 and the accumulative difference over 5 years are plotted and compared in Figure 3 below.
Table 5 :The Absolute Big Mac™ and Gold Price Difference between Actual $ and Real Dollar Year 2007 to 2011
Table 6 : The Big Mac™ and Gold Price Difference from Year 2007 to 2011
Figure3 : The Accumulative Difference Over 5 Years for Big Mac™ and Gold from Year 2007 to 2011
Performance Monitoring & Post Evaluation of Results
From the above calculation and analysis, we can say that:
The Monthly Inflation Rate between the Years 2006 to 2011 is out of control, since one point fall outside the control limit, namely in November 2008 with -1.91%. Even though the accumulative yearly rate for 2008 was kept slightly positive, but the actual recession impact can be seen here, since the highest inflation rate is also in the same year with 1.01% in June 2008 and there are two points for October and December 2008 that are in Zone A to LCL. In general, the inflation rate in 2008 is out of control.
The Real Dollar Calculation considering the inflation rate for the Big Mac™ Price in absolute value has actually no significant impact, if only we calculate for the consumer needs, compared to the actual price change.
The Big Mac™ actual relative price changes for other Countries/Area than United States are much higher than the United States, due to the fact that that Counties/Area have different inflation rate, which is not under consideration here.
The accumulative Big Mac™ Price change for United States over 5 years period is 15.94%, is still higher than the accumulative inflation rate for 5 years of 11.27%. This may happen due to the profit and services cost component.
The Inflation Rate has less impact on the increase of The Gold Price.
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