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."

ITMS currency index is much simpler

[Anonymous Coward]

1 song = 1 $ = 1 = 1 £

Re:

[Nanpa (971527)]

Actually, in Australia it's $1.69 so the example sort of breaks down there.

Re:ITMS currency index is much simpler

[eldepeche (854916)]

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

Sheez

[Anonymous Coward]

Just because 'Apple is cool', doesn't mean that you can make everything cool by jut mentioning Apple.
I'd like to introduce a new scale, the apple scale, where 0 apple is not hyped, and 10 apple is cnn/fox/interwebs hype.

This is Slashtap

[shigelojoe (590080)]

This site goes to 11.

Won't work

[Attaturk (695988)]

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 (100634)]

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

[TheJasper (1031512)]

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.

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[lawrencekhoo (108310)]

You are right in that this price index won't work. But, the crucial difference is *not* whether they are consumed immediately or not. But rather, Big Macs are produced largely using local labour and materials, and so their price reflects the local prices levels of rents, labour, and misc. materials in the country. IPods on the other hand are produced in China or somewhere, and shipped all over the world. As such, IPod prices only reflects Apple's estimate of the demand for IPods vs the competitors that

iPod vs. Big Mac Index

[NoSuchGuy (308510)]

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.

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[Silver Sloth (770927)]

But why go for a named product. We Brits pay in GBP the same price as the Yanks in USD for many IT products (and music CDs) with the exchange rate currently ~2:1. If life consisted entirely of listening to iTunes on an iPod whilst eating a Big Mac (shudder!) then these would be good markers.

I am not an economist but for me, in real terms, the price of a kilo of rice seems to be a universal index.

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[xoyoyo (949672)]

Don't even start me on US products and the currency rate fiddle. The only US-made product worth owning is an electric guitar* (Macs would count if they were *made* in the US).

A Gibson ES-335 Dot from Streetwater in the US is $1900 = GBP 950

A Gibson ES-335 Dot from Soundslive in the UK is GBP 1700 = $3400

A profit to the distributor of $1500 for moving a lump of wood from one place to another

* I might make an exception for Zvex effects pedals and the Moog Little Phatty.

Re:iPod vs. Big Mac Index

[beathyate (731955)]

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.

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[NoSuchGuy (308510)]

Sorry it's early in the morning (12:30) and we have a little bit of snow chaos here in Germany.

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[Calinous (985536)]

For me, it seems Brasil tends to be self-sufficient. As such, taxing imports is a good way to help local economy.
However, here are other things to take into account:
-gold is used or usable to evaluate the strength of a currency - but "gold is forever", and the market for gold is open to transactions in both ways.
-oil is considered the blood of the current civilisation. As such, oil is an absolutely needed item, and every buyer works on an open market
-iPods are a trend, at which some pe

Re:Won't work

[vhogemann (797994)]

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.

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[TheSync (5291)]

Brazil has had average GDP growth of 2.6 percent during Lula's term, a rate that trailed every country in the hemisphere except for Haiti and El Salvador.

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[TapeCutter (624760)]

It's like a kid I went to school with in the 60's who's natural measure of worth was "pairs of footy boots", (eg: a new bike was worth X pairs of footy boots). I think the ipod index says more about the guy who thought it up than it does about exchanges rates.

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[Black Perl (12686)]

Here's another problem: Apple fixes the prices of the iPods, at least in the US. Dealers can't go below list prices. Mail-order places like MacMall compensate for the inability to lower the price by throwing in free stuff.

I don't know if this is a good or bad thing for their index, but as a measure of true market value it sure is lousy.

Including **AA tax ?

[krouic (460022)]

The index computation does not seem to take into account the taxes (for the local **AA) that some countries are levying on MP3 players.

Local laws

[aitio (794921)]

It also doesn't take into account how local laws affect prices.

Finnish consumer protection laws are quite demanding, which causes higher prices.

Example: My iBook display stopped working after 18 months of use. I took the display apart and found that the display hinge had eaten into the cable. Because the cause of the problem was an incorrect design of the hinge, Apple had to replace the cable, with no cost to the consumer what so ever.

In the United States, you would propably have voided the warranty just by

Promoting self-assurdedness

[bryan1945 (301828)]

"Hey, my bank gave me a free toaster for opening a new account!"

"Phhh, my bank converted my account to iPodDollars(TM)!"

To me, having my bank doing currency conversions in iPodDollars does not make a happy customer. Of course, my Apple's Trallaxian overlords already are using iPod currency! :)

Not a good index...

[bytta (904762)]

This does not take price gouging in some countries into effect, so that greedy local Apple dealers and undervalued currency have the same effect.

I prefer a product that's less "cool", like milk or bigmacs.

Old idea

[aristolochene (997556)]

In the 80s the price of a mars bar was used as a method of measuring relative costs.

The cost of a mars bar reflects raw material costs, energy costs, labour costs, transport costs and local taxation.

It's a good yardstick to measure prices between places and over time.

Sounds like the same principle is being applied with iPods, with the added advantage that the mention of the word ipod guarantees coverage, more so than something as mundane as the price of a mars bar

The iPod is useless as a scale

[ElGanzoLoco (642888)]

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 (775449)]

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)

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[Calinous (985536)]

The idea was (probably) to find a strange way to evaluate a market. Considering the record, it seems to have been a success much greater than what the original inventor hoped.

Stupid idea

[sfogel (98146)]

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.

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[mgblst (80109)]

SUre, that might be the manufacturing cost of a Big Mac, but that doesn't really relate to the price charged for a Big Mac, except that in most cases, it should be lower. Price is set by demand.

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[spellraiser (764337)]

The iPod is an imported luxury good, and thus its price is subject to arbitrary decisions by dealers and governments.

Then can't it at least be used to gauge the price of luxury goods, the legislation and taxes regarding them, etc.?

Brasil's prices suck!

[Wooky_linuxer (685371)]

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.

An iPod index makes no economic sense

[patiwat (126496)]

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.

Nice measure but wrong way

[mcbridematt (544099)]

"with the Australian dollar about 15% overvalued against the greenback"

Apple products aren't the right products to use when comparing against Australian and overseas prices. Apple Australia has some history of inflating prices sky high, so much that several times in the past the price difference equaled a return ticket to the USA to purchase said companies products. These days the gap is less but frequent overseas travelers could justify it.

Dumb

[pubjames (468013)]

This is dumb. The point of the Economists Big Mac index is that it reflects a range of local costs - labour, retail space, locally produced ingredients. An iPod does not - it is almost certainly not made locally, or from local raw materials, and so it does not make a good measure of local PPP.

Not That Simple

[jonadab (583620)]

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.

And in a related article

[clickclickdrone (964164)]

Confused australians are trying to plug their headphones in to Big Macs. We interviewed Dwayne Bushtucker who said 'I read that they used to use Big Macs for their research but now it was iPods but I figured I'd check if they were compatible. I guess not...'

Not good PPP measure

[rlp (11898)]

I agree with the posters that the Big Mac index is a much better metric for purchasing price parity. But I don't think an Ipod index is worthless. I suspect it correlates well with the competitiveness of the local retail market as well as government regulation and taxation. If you adjusted the price for PPP (i.e. apply the Big Mac index), the resulting metrics could be a measure of local market efficiency (competitiveness and degree of govt. interference).

Argentina not so good either

[dalmiroy2k (768278)]

Argentina not so good either. We are almost as bad as Brasil
Check it yourself, direct from Apple Argentina:

http://www.macstation.com.ar/store/index.php?secci on=producto&code=465 [macstation.com.ar]

999.00 pesos!

999 / 3.11 (current american dollar convertion) = 321.22 dollars!!!!!!!

It's a steal.

Re:*Yawn*, Slow newsday?

[tsa (15680)]

Have you read TFA??! This has nothing to do with the iPod as a music player. O why am I even responding.

Re:*Yawn*, Slow newsday?

[antifoidulus (807088)]

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!

Re:*Yawn*, Slow newsday?

[91degrees (207121)]

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.

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[MysteriousPreacher (702266)]

The big mac sells well in it's market. If the big mac was more expensive and sold in the kind of restaurants where track-suits are not considered suitable atire, I think the sales would decline.

The Big Mac is actually good for what it is intended to be.

Re:

[antifoidulus (807088)]

You do realize that your priorities are not the same as everyone elses correct? You do realize you are not the end all be all of the world, correct? You do realize that you need actual evidence to claim something is overpriced, correct? Get over yourself. The iPod didn't work for you, that doesn't mean it is a flawed product. I don't want or need a ferrari, does that mean ferraris suck? Nope, just that I don't need one. You don't want or need an iPod. Does that really say anything about the iPod? N

Re:*Yawn*, Slow newsday?

[shplorb (24647)]

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!

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[LKM (227954)]

Apple stuff is nearly always overpriced for what they offer. Especially accessories for the ipod

...which are usually not made by Apple at all.

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[10Ghz (453478)]

"The primary reason it has sold so many units is because they managed to make it a fashion statement and people love to feed their Egos & have status amongst their peer groups."

Back when I was shopping for mp3-players, I did look around. Creative and other felt flimsy and cheap. iPod Mini felt like a hi-quality piece of equipment. I had no special interest to buy an Apple-product, I wanted the best possible product. And the iPod simply felt better than the competition did. The iPod was the only one that

Re:

[Vexorian (959249)]

Yeah, the ipod is just a friging mp3 or other stuff player with DRM, for god's sake don't make a hype out of it, stylish hardware shouldn't be the standard for mass acquiring stuff.

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[Anonymous Coward]

Oh no! he spelt it MAC We must burn him!

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[Carlos Laviola (127699)]

It's fucking robbery considering what we get for what we pay.

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[StrahdVZ (1027852)]

Whoever wrote this seems entirely clueless about economics.

The Commonwealth Bank and its subsidiaries are NOT what you would call expert trading and financial institutions. Its just BIG, due to its history as an ex-government institution, and "supposedly" easy to access (although other banks have far better business hours across all their branches).

Anyway the comparison to the Big Mac Index is apt. They are the banking equivalent of McDonalds (if you can imagine, Big Mac Banking).

Likewise their trading subsidiary, Commmonwealth Securities, are the trading equ