DEFINITION of 'Starbucks Index'

A representation of purchasing power parity published by The Economist that determines what a country's exchange rate would need to be in order for a Starbucks tall latte to cost the same as it does in the United States. Using this index, the purchasing power of each individual national currency can be reflected in the U.S.-dollar cost of a latte in that country.

This can also be referred to as the "tall latte index."

BREAKING DOWN 'Starbucks Index'

In theory, if currency markets function with proper efficiency, the price of an identical product, such as a Starbucks latte, should have an identical U.S.-dollar cost in any country. Therefore, if a latte costs significantly less in one country than another, this suggests that the country with the cheaper latte price has an undervalued currency.

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