Tag Archives: pound

What Coca Cola Tells Us About Egypt’s Economy

The next time you sip on a bottle of Coke, think about how much it tells you about Egypt. 

How much does a bottle of coke cost in Egypt? Figure out this simple piece of information and you could estimate where the Egyptian pound is headed or at least how overvalued it is (or undervalued, depending on your perspective. If you still haven’t figured out what’s going on with the pound, read this excellent Bloomberg Q&A).

That’s according to data startup, Premise, a San Francisco company that’s using an army of smartphone users around the world to take pictures of food and drink and use it to track global food prices. It can sniff out inflation way before a country has a clue. One of its tools, a snappy chart called the Coca Cola Index, a riff on The Economist’s famous Big Mac Index, reveals currency trends about the world based on the price of a bottle of Coke (at least, that’s what Premise reckons.) Here’s a snapshot of their work:

So what do these squiggly lines say about those countries’ currencies and what does that have to do with the price of Coke?

Premise explains:

Like the Big Mac, the price of Coke sold in a supermarket reflects the cost of a wide range of inputs: sugar, rent, manufacturing labor and the labor of retail workers. If we assume that the price of Coke is broadly representative of the price level, then we can infer likely movements of exchange rates. Countries with a relatively high price level will try to import goods from other countries with cheaper goods, weakening the domestic exchange rate.

Take China, for instance, where a bottle of Coke is roughly half the price it is in the US. Premise say this could hint at an undervalued Renminbi. And if it wasn’t for China’s fixed rate policy which keeps the currency at a consistent 50% undervaluation, the price of a bottle of coke would likely appreciate under a floating regime. They did a little more digging on Argentina, Brazil and the US, too.

Imagine the same method applied to the Egyptian pound and what it could reveal about currency trends, particularly what the government isn’t telling us. According to Numbeo, which aggregates cost of living data around the world, the average price of a bottle of Coke in Egypt is 43 cents (3.3 Egyptian pounds), which is ridiculously cheap compared to the roughly $1.50 you’ll find in the US.

If it wasn’t for Egypt’s monetary policy which has kept the pound artificially low, but to some still overvalued, where would the currency be today?

We don’t have enough information about Egypt’s coke prices to infer anything solid, but Premise shows us how simple tools and easily attainable data can offer a peek into the real value of the pound, which for so many years has been shielded by the Central Bank, one of the most opaque institutions in Cairo, and the government, one of the most dysfunctional.