What does a latte tell us about currencies? Very little, actually

Purchasing power parity is not the same as the Big Mac Index.

The Wall Street Journal sees what the Economist is having, and it likes it. The latter's Big Mac Index is famous for demonstrating the variation in prices for the same good around the world. Despite Big Macs being basically identical no matter where you are, the dollar price varies wildly, from $6.81 in Switzerland down to just $1.82 in India. It's so influential that it's widely thought that Argentina is exerting pressure on its branches of McDonalds to keep the price down so as to not provide evidence of the nation's tinkering with reported inflation.

So now the WSJ wants a piece of the action, and has created its Starbucks Latte Index. I mean, it doesn't call it that, but that's what they're thinking:

Click to embiggen.

But like the Economist, the WSJ draws the wrong inferences from the variation. They both have a habit of using the data to illustrate purchasing power parity, the idea that some currencies are under- or over-valued because a comparable basket of goods varies in price. So the WSJ's Ira Iosebashvili writes:

One way to determine how currencies stack up is purchasing-power parity, or PPP, which compares the amount of currency needed to buy the same item in different countries. A grande latte at Starbucks, for example, costs $4.30 in New York, but the equivalent of $9.83 using Norwegian krone in Oslo, and just $3.92 in Turkish lira in Istanbul.

Starbucks Lattes and Big Macs both have another unique feature, though, which renders them less useful for comparing the strength of a currency overall: they are both made up of highly fungible goods, produced in two of the most integrated supply chains in the world. McDonalds, for instance, doesn't need to buy artisanal wheat from an individual farm; it can just trade in "wheat" as a mass-produced, internationally-traded com oddity. The company has even invented a product to sell to take advantage of variations in the cost of pork, the McRib.

In fact, for Starbucks, that's even more true than it is for MacDonalds. While Maccy D's has made a big deal out of its promise to only use British beef in its British burgers, most of the countries Starbucks operates in in don't grow their own coffee. That has to be imported from South America or North Africa, and so a Starbucks in London will almost certainly be paying the same for its coffee as a branch in Oslo, despite the difference in retail price being over $6.

What the Starbucks and Big Mac indices actually show is the price of unskilled labour and retail space. Those are the parts of the companies' businesses which, no matter how hard they try, they can't erase national differences from. Operating in Oslo, land of high taxes, is always going to be expensive, no matter how strong or weak the krone is.

The Starbucks index even makes this clear, thanks to the fact that the WSJ has included three American cities. A latte in New York City costs more than one in Detroit, a difference that self-evidently can't be due to the currency variation.

But the really important news is that London is actually one of the cheapest cities in the world for a Starbucks latte. Still overpriced for what it is, though.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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What does it mean for Ukip if it loses in Stoke-on-Trent Central?

The party’s prospects are in question if it fails to win over the “Brexit capital” in Thursday's by-election.

“The Only Way Is Up!” blasted through a hall in Stoke-on-Trent Central on a damp Monday evening earlier this month. It was the end of a public Ukip meeting, in which Nigel Farage and his successor and by-election candidate Paul Nuttall made their rallying cries to an audience of around 650 supporters.

But even then, a fortnight ago, the note of triumph in the dance classic was tinged with uncertainty. “We’ve won the war, but we’ve yet to win the peace,” Farage admitted to the sympathetic crowd. And while this message is supposed to make Ukip’s fight relevant even in the context of Brexit-bound Britain, it betrays the party’s problem: the battle that was its raison d'être is over.

Failing fortunes

Since then, the party has had more to contend with. Its candidate in the Labour seat has been caught lying about having “close personal friends” killed at the Hillsborough disaster. This comes on top of a number of other false claims, and an investigation into whether he falsely registered his home address as being in the constituency.

After these scandals – and a campaign seemingly unable to turn out apathetic voters (which I covered a couple of weeks ago) – Ukip’s chances in the West Midlands seat look worse than expected.

Initially the main challenger to Labour, Ukip is now being predicted for third or even fourth place in the seat, behind a Tory party that essentially stood aside to give Nuttall room, and to focus on a concurrent by-election campaign in Copeland.

It’s in Labour’s interest for the campaign to continue looking like a close Labour-Ukip fight, in order to keep hold of tactical voters. But both the Conservative and Lib Dem campaigns are feeling more buoyant.

“We are relatively confident that Ukip are not going to win, and that is quite a change,” the Lib Dem campaign coordinator Ed Fordham told me. “That has actually relieved lots of voters of the emotional risk of letting in what they perceive to be an unpleasant, far-right option . . . and voting for who they would like to represent them.”

One local activist chirped: “It will hopefully be a terrible result for Ukip.”

So what will it mean for Ukip if it loses?

Great expectations

Ukip has a lot riding on this seat. Farage called the by-election “absolutely fundamental” to Ukip’s future. Its new leader, Nuttall, took the risk of running as the party’s candidate there – riding his reputation on the by-election.

This created a lot of hype about Ukip’s chances, which the party has privately been trying to play down ever since. Even before the scandal surrounding Nuttall, he was emphasising that the seat had only been Ukip’s 72nd target, and told me he had taken a gamble by running for it. “The way it’s being written up as if this is the one – it wasn’t,” he insisted.

But Stoke-on-Trent, where 69 per cent voted Leave, has been labelled the “Brexit capital”. According to political scientist Rob Ford, the author of Revolt on the Right who has been studying Labour’s most Ukip-vulnerable seats: “It should be a pretty favourable seat for them, pretty favourable demographics, pretty favourable [negative] attitudes about the EU, very high Brexit vote there and so on.”

In other words, if Ukip can’t win here, against a weak Labour party, where can it win?

Struggle for seats

Brexit is central to Ukip’s by-election campaign. The party has highlighted Labour’s splits over Europe, pointed out the Labour candidate Gareth Snell’s Remainer credentials, and warned that the government needs to be held to account when negotiating Britain’s exit.

But Ford believes this rhetoric is unlikely to work, since the Tories are already pursuing a “hard” Brexit focused on immigration control. “A difficulty for Paul Nuttall and Ukip is that people are going to say: why would we vote for you when we’re getting what we want from the government? What’s the point right now?” he said. “I can have all the Brexity stuff, all the immigration control stuff, but with none of the incompetence and serial lying about Hillsborough – I think I’ll take that!”

So if rerunning the EU referendum doesn’t work, even in such a Brexit-heavy seat, this means trouble for Ukip elsewhere in the country. A Ukip councillor in a top Ukip target seat with similar demographics to Stoke believes it’s “crisis time” for the party.

“It is very sad to say, but Ukip has lost its way,” they told me. “It’s still a strong party, but after losing Nigel, it’s lost a little of its oomph. The new gentleman [Nuttall] has been silly with the comments he’s made. That’s a big worry in some regards. You need to be a people person. It’s a serious situation at the minute.”

If Ukip can’t prove it can win parliamentary seats – even in favourable by-elections – then it will be difficult to prove its authority as a political party come the general election.

Leadership lament

Should Nuttall lose, Ukip’s leadership will come into question. Again. During a tumultuous time late last year, when the favourite Steven Woolfe left the party after a physical altercation, and Diane James quit the leadership after 18 days, commentators asked if Ukip was anything without Farage.

When Nuttall eventually took over, the same voices warned of his threat to Labour – citing his northern and working-class roots. It’s likely this narrative will change, and Farage’s golden touch pondered again, if Nuttall fails to win.

But rather than panic about its national leader, Ukip must look carefully at those who commit to the party in local campaigns. On the ground in Stoke, running Nuttall as a candidate instead of a local Ukipper is seen as a mistake.

“I don’t know why they did that,” one local activist for an opposing party commented. “If they’d run Mick Harold, they would’ve won. He’s a Stokie.”

Harold, the deputy chair of Staffordshire County Committee, and chair of Ukip’s Stoke-on-Trent Central/North branch, won 22.7 per cent of the vote for Ukip in the constituency in 2015. He insists that he stands by his decision to step aside for Nuttall, but does highlight that Ukip should increase its vote share.

“If we’re increasing our percentage share of the vote, we’re still moving forward and that’s how we’ve got to look at it,” he told me. “I got 22.7 per cent in 2015. I would think this time we’re going to certainly get somewhere around the 30 per cent mark.”

Would it have been more likely to achieve this with Harold as candidate? “Whatever happens, happens, we’ve just got to move forward,” he replied. “If you’ve made a mistake, you move on from it.”

I have heard similar misgivings from local activists in other parts of the country – people who have achieved impressive results in local elections and the general election, but haven’t had much thanks from the national party. “We need to get professionalised now,” one such campaigner said. “Because we’ve got grassroots people who are not career politicians [doing all the hard work].” They say their local party is fed up with leadership being dictated by “personal grudges” at the top of the party.

***

As I’ve written before, I don’t think this is the end of Ukip. Once Brexit starts to bite, and it’s clear immigrants are still needed to fill jobs, there will be resentment enough to make space for them again. But losing Stoke will highlight the challenges – of purpose, leadership and local organisation – that the party will need to overcome for its next stand.

Anoosh Chakelian is senior writer at the New Statesman.