Every Christmas, our family heads to Belfast to see the in-laws and eat gluttonously, drink copiously, argue endlessly, and fill the boot dementedly before we head down South again. The difference in prices between the Republic and Northern Ireland is remarkable, particularly at Christmas when everyone is buying more of everything.
Choosing to shop in the North makes you richer.
Brexit will not change this. In fact, Brexit may make the price differences yet more clear-cut.
If sterling were to weaken against the euro next year because of a nasty shock during negotiations, a political change in London, or simply because European rates move up quicker than expected, Southerners would be mad not to think of the North as a giant discount store.
It is a “constitutional Lidl” that’s just up the road.
But before focusing on the bargains that are available up North, it’s worth considering just how expensive Ireland is relative to countries around the world.
To compare prices between Ireland and the rest of Europe, I’m going to construct an Irish version of the famous Big Mac Index. The Pint of Guinness Index is just a boozy version. It compares prices of Guinness in Irish pubs all over the world from Tokyo to Bucharest, Lisbon to Lima.
In a world dominated by financial markets where exchange rates can move up and down for no apparent reason, the Big Mac Index was conceived by the Economist magazine to try to assess whether exchange rates between countries were at their “correct” level.
The economic theory behind this is called “purchasing-power parity”. This means that, over the long term, the exchange rate between two countries should move toward equalising the prices of identical goods in two countries.
For the Economist, the Big Mac was a perfect identical product sold all over the world at McDonald’s franchises – a proxy for the real prices in each country.
So, if the price of a Big Mac in America was $6 and was $3 in France, the Big Mac Index would imply that the euro was 50% undervalued against the dollar. As a result, in the long term, the euro should rise against the dollar to eliminate this real underlying price difference.
Now let’s put Ireland into the frame.
If the Big Mac is America’s most conspicuous cultural export, bringing a version of America to the farthest parts of the globe, the ubiquitous Irish pub must be our equivalent.
It projects an ersatz “Irish-ness” to the most remote places. Some people might get sniffy about the replica, made-to-order Irish pubs, but it is the product Ireland exports everywhere.
Therefore, for an Irish view of the world of economics, the same logic should apply for pints of Guinness as for Big Macs. If the pint of Guinness is way out of whack between two countries with differing exchange rates, then there must be something wrong.
What happens to the price of a pint of Guinness, brewed in Dublin, when it leaves Dublin? Remember, economic theory states that because of transport costs, the price of goods should increase the farther away from the home country it travels.
But in almost all cases, the price of a pint of Guinness gets cheaper when it leaves Ireland. In some cases, the difference is enormous. In Spain and Greece, Guinness is 34% cheaper than it is here. In Germany, a pint of stout is 15% cheaper and in Austria 25% cheaper.
That’s only within the EU. Compare prices between Ireland and Singapore, Peru, Japan, and Russia, and you can see where Ireland stands on the global league of expensiveness or cheapness. It’s not a pretty sight.
However, all these places are too far away to avail of the arbitrage between the prices. We can’t go shopping in Peru. But we can go up North.
Taking the political rhetoric about the “all-island economy” at face-value, we can treat the island of Ireland as two economic zones within the one economy. We have the euro zone here and the sterling zone up North.
If we apply the Pint of Guinness index to the two exchange rates operating on the island, we can see that the sterling zone in this island economy is hugely undervalued vis a vis the euro zone. This is an opportunity for the Republic.
The average price of a pint in Dublin is €5.50; up the road, in central Belfast, the same pint will cost you £3.40 or €3.84. Therefore, the implied exchange rate from the Guinness Index is €1 = £0.62. Consequently, there is a gap of 30% between the financial market exchange rate and the Guinness exchange rate.
This means that, in Northern Ireland, sterling is massively undervalued against the Euro.
Over time, the theory says that sterling would rise against the euro if its path were determined only by economic conditions in Ireland.
But the euro vs. sterling exchange rate is not simply determined by events in Ireland. It is affected by world events. Therefore, sterling won’t rise against the euro materially.
As a result, there is a massive opportunity between the two zones of the all-island economy.
At these prices, it is an act of economic self-harm not to shop in the North. If you could do all your shopping in the North you could raise your disposable income by 30%.
The benefits to the whole country of using the North as a “constitutional Lidl” – a bargain basement a few miles up the road – would be huge.
Some retailers in the Republic, however, would almost certainly say that deserting the expensive South for the cheap North would destroy retail in the South. Granted, there would be some casualties, but it’s more likely that retail in the Republic would simply evolve.
Irish retail has never been destroyed by a 30% increase in the disposable income of the Irish consumer.
This is the sobering conclusion from the Pint of Guinness Index.
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Surely there is problem with this analogy in that there is vastly different duty and VAT added onto alcohol in these different jurisdictions… Ireland having one of the highest alcohol duties in the Europe, not sure about the rest of the world.
@David McWilliams
TRANSLATION -> THE EXCHANGE RATE WILL CRIPPLE IRELAND?
“Irish retail has never been destroyed by a 30% increase in the disposable income of the Irish consumer.”
-> HAS IRISH RETAIL EVER BEEN DESTROYED
=> BY A 70% DROP IN SALES?
The reason we pay too much for everything is very simple. Out taxes including indirect are unbelievably high to pay for the high wages and pensions for the public service. Somebody should do the math.
Go north to save……
The Irish are lazy/stupid about finances, they go to the UK to buy a s/h car ‘cheaper’, then get whacked by Revenue but won’t admit that in the long run they actually paid more than they could have bought it here for. Nobody believes me when I tell them how much my latest s/h car cost me, original Irish reg car bought here, for 60% less than I’d have paid going to the UK – that’s because I checked ALL the factors before purchase. A car importer told me that the manufacturers price the pre-tax base cost on where they… Read more »
@ HoChi, I’d like to know how you saved 60% on the price of a s/h car here in Ireland and the UK?? The last time I bought a s/h car back in February 2009 I went up north to purchase and I can tell you that I saved myself a packet. Even after paying the vehicle registration tax when I brought it back down south I saved over €2000 on the price of the same make and model of car down here in Cork. So, can you please tell me and everybody else how you would go about saving… Read more »
In 1968 a glass of beer was 25 cents. The going labour rate was $2.50 / hour. Thus an hour of labour in BC was worth 10 beers or glasses of beer at about a 1/3rd of a pint. Today the cost of a glass of beer is about 4.75. The labour rate is lucky to be above 20 dollars. to be charitable we will say 25/ hour. 25/4.75 = 5.2. So as a beer gauge on the economy an hours labour buys a half what it used too. That is, since we went totally off the gold standard in… Read more »
I have heard of the Big Mac index. Some people would state the Big Mac might not even pass for nutrition. I can say that Guinness is definitely NOT an essential. So, both indexes are of questionable worth. Perhaps a simple litre of milk might be a better comparison. Given that it is a commodity without anything added. And it is of higher nutritional value than either mashed meat in a bun, or rotten barley in a bottle. McDonald’s have a core objective – to have an outlet within a ten minute drive of 95% US consumers. In fact a… Read more »
Hi David, Inflation in the US measured in big mac terms; http://inflation.us/bigmac/ The average inflation rate PER YEAR from the graph for the last 12 years is 5.5%! In other words the us dollar is worth an eye watering 65% less now than it was only 12 years ago measured in capacity ti purchase a big mac. Still no mainstream economist will take about inflation in prices, increase in the money supply or increase in the national debt. Most People I know david have had their salaries at the same level for the last 10 years. Which means they are… Read more »
Hedonists in Irish State have moved from Guinness to Hard Drugs Cocaine Heroin & worse How about a Smack Guide to Currencies ? /////////////////////////////////// Interestingly, … ; Heroin went rampant outside of Dublin just after the visit by Queen Elizabeth 2 of England & her entourage ; I think that the British Royal Navy were exchanging jokes with the Garda Special Branch. Never be complacent about Brit. Royal Family Mshd / Google.com results for string ; mountabatten AND airey neave AND assassination AND heroin https://www.google.com/search?dcr=0&source=hp&ei=9GxLWuixKMWh0gTrv5XoDA&q=mountabatten+AND+airey+neave+AND+assassination+AND+heroin&oq=mountabatten+AND+airey+neave+AND+assassination+AND+heroin&gs_l=psy-ab.3…524.15234.0.16385.42.42.0.0.0.0.327.5800.0j18j9j1.28.0….0…1c.1.64.psy-ab..14.17.3286…33i160k1j33i21k1.0.HhJ2t2m8v7A e.g. http://www.hallettreport.com/No3.html ////////////////////////////////////////////////// THE 1st CREATIVE PRIORITY IS “HOUSING” FOR THE POPULACE THE 1st DESTRUCTIVE… Read more »
EWES MAY WELL NEED A GUINNESS AFTER READING ABOUT HOW UR TAXES ARE SPENT ON AUL TRINNERS . 8-) . . . Ref. 31st December 2017, 10:21 PM #1 General Urko Our Professors Paid More Than Those At The World’s Top Universities With our university rankings in freefall, it hasn’t stopped these lads (and they are very much mostly lads) pigging at the trough to the last! https://www.independent.ie/irish-new…-29298324.html Full professor salaries at Trinity College Dublin – ranked 110th in the world – and University College Dublin (187th) average €138,350 and €134,150 respectively. This compares with the €139,853 paid on average… Read more »
NB: I’m back to post for ‘lurkers’ who visit this site who requested another stand-up stint by BrummieBoy, I’m not here to re-join you all in your mental mosh-pits or deal with lame trolling….. STAY IN YOUR LANE! Or you WILL be vapourised…. so….. just got back from New Year in Reykjavik and, funnily enough, went into Ye Olde Irish & Englishe pubs there to check out the insanity of prices for a pint of stout. I thought CPH airport was the limit but, obviously our ‘Nordic Paddy’ friends in Iceland had to go one better. They are gettting ready… Read more »
Before a person can vote or propose solutions for a sovereign state they must first think like a sovereign person. Here is an essay that examines “Consent” and what it actually means.
It is common parlance today to examine consent in the context of human interaction but there is little consent allowed when it comes to government and the individual.
http://www.thedailybell.com/news-analysis/how-the-lack-of-consent-has-made-us-all-victims/
The price of a pint of Guinness in North Korea maybe every expensive if you could find one.
http://thefreethoughtproject.com/chinese-military-troops-n-korean-border/?utm_medium=pushnotify&utm_source=browser&utm_campaign=pushfeeds&utm_content=push
The real state of the US economy Sub prime car loan delinquents. http://investmentresearchdynamics.com/is-sub-prime-auto-loan-armageddon-coming/ Mortgage defaults? https://usawatchdog.com/2018-economy-goes-cold-inflation-hot-danielle-dimartino-booth/ Not to mention the rampant inflation in full view. Ask yourself, Has the economy grown much have wages increased, have people paid down debt. No , no, and no. What is the wealth effect. Things have gotten more expensive. houses, stocks and bonds? Yes, yes, and yes. People living off credit cards and using their house as an ATM is the present not the past. This activity will accelerate in the near future. The crypto market booms. The money is there. One pays another… Read more »
Guinness:
Ireland – 100
Germany – 85
Austria – 75
Malaysia – a bit over 50
And they say that Guinness doesn’t travel well…
Industry Weekly Wage____Euros___________Pint€________________Pints
1969____________________19.63___________0.20__________________100
1973____________________38.30___________0.24__________________159
2002____________________483.05__________3.24__________________149
2006____________________597.66__________3.74__________________160
2017____________________695.80__________5.50__________________126
Keep the recovery going!
NEWSFLASH ! . ////////////////////////////////////////// PREAMBLE ; THEORETICALLY … WHITE CAN CO-EXIST ALONGSIDE BLACK JUST LIKE DRAUGHT GUINNESS ……………………………. Guinness is very popular in Nigeria-land BUT … BUT … BUT Nigeria-land is NOT very popular in Ballbriggan ; Such is the argument of the Irish aborigines there. ………………………………………….. AS NOT REPORTED ON “RTE Views” [ RTE News 8-) ] YET … [ EVER ? ] https://twitter.com/OnlineMagazin/status/948160054133477376 Online Magazin? @OnlineMagazin ????????????? #Ireland : THE TWEET ; Media blackout ! About 700-1000 Irish residents of Balbriggan marched to their local Garda station to protest against violent Africans terrorizing their area and community !… Read more »
“Twas da drink that made me do it Magistrate”
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Opportunity of cheap parts for ur car now.
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I wonder does basic Insurance cover for all the cost of replacement, & with no hike on premiums, for such an event ?
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https://www.express.co.uk/news/world/899126/Emmanuel-Macron-France-New-Year-thugs-revolt-torching-1000-cars-lynching-police
There is an alcoholic in the story here who never has to worry about the price of a pint of Guinness ;
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https://www.express.co.uk/news/world/898995/EU-Switzerland-referendum-Doris-Leuthard-Jean-Claude-Juncker
“A jacuzzi full of Guinness for yer get-together with the missus, & friends Mr. CEO.” . . So, how, & where, does the IDA entice Silicon Valley, California to invest in Irish State ? . . HEADING ; “Oh My God, This Is So F—ed Up”: SUB-HEADING ; Inside Silicon Valley’s Secretive, Orgiastic Dark Side Some of the most powerful men in Silicon Valley are regulars at exclusive, drug-fueled, sex-laced parties—gatherings they describe not as scandalous, or even secret, but as a bold, unconventional lifestyle choice. Yet, while the guys get laid, the women get screwed. In an adaptation from… Read more »
Quote of the day.
Alasdair Macloud
“”Economists’ forecasts today, with very few exceptions, are a waste of time and downright misleading. In 2016, we saw this spectacularly illustrated with Brexit, when the IMF, OECD, the Bank of England and the UK Treasury all forecast a slump in the British economy in the event the referendum voted to leave the EU. While there are reasonable suspicions there was an element of disinformation in the forecasts, the fact they were so wrong is the important point. Yet, we still persist in paying economists to fail us.
Beware the rise of interest rates causing bond yields and other financial assets to fail.
https://www.goldmoney.com/research/goldmoney-insights/investment-prospects-for-2018
“Logically, when money flows from financials to non-financials, fundamentals for equities should improve. But all economic factors leading to improving fundamentals for corporations are typically more than negated by rising bond yields. On this credit cycle, the forces at work are likely to be considerably more violent than seen in living memory, given record levels of debt everywhere, the mistaken attempts to synchronise all the G20 economies into the same credit cycle, and the wholly wrong-footed Eurozone and Japanese financial systems.”
Cryptocurrency – its status as money By Alasdair Macleod Goldmoney Insights August 10, 2017 The cryptocurrency craze is fascinating to an economist, or at least a student of catallactics, because it is a test of the theory of exchange ratios and prices, which is what catallactics is about. For this reason, the outcome of the cryptocurrency craze is of great theoretical interest. It is also of interest to students of the psychology of speculation. Supporters of cryptocurrencies claim they are money. If they are unable to substantiate this claim, then we must conclude that cryptocurrencies are only a medium for… Read more »
The forthcoming global crisis By Alasdair Macleod Alasdair Macleod September 21, 2017 The global economy is now in an expansionary phase, with bank credit being increasingly available for non-financial borrowers. This is always the prelude to the crisis phase of the credit cycle. Most national economies are directly boosted by China, the important exception being America. This is confirmed by dollar weakness, which is expected to continue. The likely trigger for the crisis will be from the Eurozone, where the shift in monetary policy and the collapse in bond prices will be greatest. Importantly, we can put a tentative date… Read more »
@ Grzegorz,
Further to ongoing special interest topics of urs :
Geo-Politics
Trade Routes
https://en.wikipedia.org/wiki/Radhanite
The Singapore number is pretty much an outlier. Heavy duties on alcohol (and there used to be a special penalty for Guinness when it chose Malaysia instead of an agreed spot in Singapore to produce export Guinness) make all alcoholic drinks in Singapore relatively expensive. You can buy a Tiger beer 600ml bottle in Singapore for well under half the price of the Guinness pint, and for more or less what you’d pay in Ireland, and this shows that Guinness is an artificially inflated priced product as it’s assumed that mostly expats who are used to paying through the nose… Read more »
Newly refurbished Bewleys on Grafton st charge 7 euro for a bowl of watery soup.Pubs charge 10 euro for a bowl of soup and a dessert. Renting a four bedroom house in Clontarf costs 3.5 k per month. Twenty per cent dearer than London,double the price in Leeds or Glasgow. Half a million Irish adults live with parents. Dublin house prices have risen by a multiple of seven post 1990.Thanks to relentless immigration. Whisper it gently.
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