Saipan on the Big Mac Index

Back in 1986 The Economist magazine published an informal way to measure the purchasing power of currencies to test the values of different countries’ money. It was called the “Big Mac Index” after the McDonald’s burger. The Big Mac was chosen as the product to compare because cost are globally similar. I thought that it might be interesting to compare a U.S. dollar spent on Saipan to a “U.S. dollar” spent in Hong Kong (fixed exchange rate: HK$7.80 to US$1). Today, I bought a Big Mac in Hong Kong on sale for US$2.60. On Saipan the same burger is now selling for about US$4.50. The index ratio is $4.50/$2.60 = 1.73. The ratio indicates that a Big Mac on Saipan is 73 percent more expensive than the Hong Kong price. When you consider that Hong Kong is listed as one of the five most expensive cities in the world, that makes Saipan a very expensive place to live.

Strawberries imported from California via air to Hong Kong are now being sold for US$3.60/lb. On Saipan the same berries imported from the same supplier are selling for about US$9/lb. That is a difference of US$5.40/lb or about 150 percent higher on Saipan. Logistics, waste, our small market, and profit margins are all parts of the selling price. It says that our retailers need to consider “thinking out of the box” to be more productive and find ways to lower cost. Lower income people can no longer afford to live in the CNMI. Especially, when costs of electric power, water, services and gasoline are also considered.

For example, consider gasoline: On Saipan the selling price for a gallon a gasoline is about US$4.75 (less $0.15 for CNMI tax) for a cost of US$4.60/gal after tax. In the state of Michigan, at a Costco Station, gasoline costs US$3.37/gal (less US$0.40 in total taxes) for a value of US$2.97/gal after tax, or a difference of US$1.70/gal. The Big Mac index is $4.60/$2.97 = 1.55. That means our gasoline is 55 percent higher than Michigan (MI gas tax ranks 22 of the 50 states). I would like to know why it cost US$1.70/gal to bulk ship and store a gallon of gasoline to Saipan. Why is it that there are no discount gasoline stations on Saipan? Why are prices always the same at all the stations? If we had stations that were more productive and competitive there seems to be enough margin to sell discounted gas for at least 30 percent cheaper. What do you and your readers think? Do I have a point? The people of Saipan need help to stop losing our standard of living caused by high prices!