Forbes magazine’s new purchasing index concludes that Israel’s shekel is one of the most overvalued currencies in the region.
The Israeli shekel is among the most overvalued currencies in the Middle East and food prices in Israel have increased more than in any other developed country since 2005, according to a new purchasing index from Forbes magazine called the Falafel Index.
The Falafel Index is a version of the Economist’s Big Mac Index tailored for the Middle East.
Like its older counterpart, the Falafel Index determines the purchasing power of different currencies – but rather than comparing hamburgers, it compares the prices of falafel across the region. Falafel, a staple meal in the Middle East, is a pita bread filled with crisp golden balls of fried chickpeas, known as falafel balls.
For many in the Middle East, eating at an international food chain, like McDonald’s, is often more expensive than local restaurants. Thus, the Big Mac is not a basic food and does not represent what the common folk can afford.
The Falafel Index is “a more suitable metric,” Forbes writes. It reflects the actual purchasing preferences that everyday citizens bring to the market, is not significantly affected by fixed costs, such as rent and transport, and its ingredients are similar across the region – pita, tomatoes, cucumbers, tahini (a sauce made from sesame seed paste) and pickles.
“Falafel may be the big equalizer when it comes to indexing Middle Eastern economies,” Forbes says.
The first and current Falafel Index indicates that falafel is cheapest in Rafah, Gaza, and Dehaishe, the West Bank, where 17 falafels can be purchased for $10. It is most expensive in Haifa, Tel Aviv and Muscat, Oman, where $10 buys only two falafel sandwiches.
Average prices are cheaper in poorer countries, where labor and property costs are lower, so the index adjusts for average income in various Middle Eastern cities and countries. The resulting relationship between the price of a falafel and income per head can be used to estimate the market value of a currency.
One of Forbes’ conclusions is that the Israeli shekel is among the most overvalued currencies in the region. Food prices in Israel have increased more than in any other developed country since 2005 and are currently 19 percent higher than other Organization for Economic Co-operation and Development (OECD) countries – and 25 percent higher than Europe.
“The Bank of Israel is attempting to fight the strength of the shekel, which appreciated 9 percent against the dollar last year,” Forbes says. “The Kedmi Committee (colloquially referred to as the “food committee,”) formed after massive protests in 2011, blamed lack of competition for price hikes in food and consumer goods.” According to the Falafel Index, a $4.62 falafel sandwich in Tel Aviv-Yafo is no exception, even when accounting for income per head.
View original HAARETZ publication at: http://www.haaretz.com/business/1.588355