It's just a burger, but the price of a Big Mac can help us understand the dizzying cost of living.

In the first half of 2017, a Big Mac cost $5.80 in Australia.

We know this because the burger's price is tracked across 55 countries as a light-hearted way of keeping an eye on the global economy.

Year by year, the price crept up in small increments, reaching $6.15 by the start of 2019.

These were normal times, before inflation had spiralled out of control and sent the country into a cost-of-living crisis.

The price of a burger kept climbing at a steady rate into 2020 … when the pandemic hit.

While people were stuck at home, the cost miraculously dropped for the first time in years.

For the two remarkable years that followed, it hovered around $6.40.

Then, in early 2022, the cost-of-living crisis hit.

Practically everything that money can buy — from toilet paper to a trip to the dentist — started costing more.

Inflation drove prices up across the board, and our humble burger was no exception.

From Tokyo to Berlin, Parramatta to Chinchilla, the Big Mac is supposed to be identical every time — a bun, two beef patties, a single slice of plastic-y cheese, pickles, onion, lettuce and a dollop of sauce.

These fundamentals are produced at industrial scale, assembled by teenagers and, increasingly, sold via touchscreens and apps.

It's a mass-produced commodity, inextricably linked to the intricacies of the global economy.

"If [the price of a Big Mac is] moving, it means there's something really strong going on in the economy at large," says Leonora Risse, associate professor of economics at the University of Canberra.

So, what exactly has been going on? Let's dig into what makes up a burger to find out.

Here's that Big Mac chart again.

This time, it isn't showing the exact price of a burger, but rather how much its price changed each year.

So the further above zero, the more the price rose in any given year.

It shows the short period when the price of a burger fell during the pandemic.

And the steep rise in prices throughout 2022 and 2023.

The first step towards deconstructing any burger — price-wise or otherwise — involves pulling apart its ingredients.

Here's how the cost of Bread has changed across the same period. Its rising price roughly follows the same path as the burger itself.

It's largely the same story for Cheese.

On the face of things, this makes sense.

When McDonald's has to pay more for its ingredients, it passes those costs on to consumers.

It's economics 101, right?

There are other operating costs, too. Beyond the ingredients themselves, it takes a fair bit of Electricity to run a burger joint.

And, by the looks of things, power price movements in Australia broadly align with the burger's trend.

It's tempting to think this explains how the price is set.

The cost of ingredients and utilities are passed on to the consumer, allowing McDonald's to maintain its profit margins.

But, it turns out, the real world isn't quite so simple.

Beef and Veal prices have been off doing their own thing, completely defying the general trend.

There's almost no correlation between the price of our burger and the beef that goes into its dual patties.

"[McDonald’s] operates on such a scale and has really strong contracts in place," Dr Risse explains.

"Even if there's ups and downs in the wholesale price of beef, it likely doesn't get passed on [to consumers]."

The same goes for bread, cheese and the other ingredients, too.

Fluctuations in input costs aren't the whole story here.

Along with the ingredients and utilities, the restaurant chain has to pay its 115,000 employees.

Someone has to flip all those burgers, melt the cheese and stack the ingredients inside the buns.

McDonald's is required to pay staff in Australia according to the industry minimum wage.

And, aside from a seven-month wage freeze during the pandemic period, wage rises didn't correlate with the rising price of a Big Mac, either.

Former governor of the Reserve Bank Phillip Lowe told Senate estimates last year that "wages have not been a driver of inflation", and prominent economists tend to agree.

So the gradual increase in minimum wages is unlikely to be moving the price of the Big Mac much.

So, if its price isn't set conclusively by ingredients, utilities or wages, then what else could be driving the price increases?

We tried asking the company itself. A McDonald's Australia spokesperson said its prices were "reflective of the trading environments they're operating in".

"As individual businesses McDonald’s franchises set their own general pricing … and work in partnership with McDonald’s on fixed-price promotions."

The spokesperson said McDonald's price increases over the past two years were lower than inflation, on average. However, the Big Mac Index shows that single product's price has outgrown inflation over the same time period.

'The special sauce'

There is another cost factor that has been surprisingly significant for McDonald's franchises: intellectual property.

A proportion of the proceeds from every burger sold in Australia is sent to the company's corporate headquarters overseas as a royalty payment.

These royalty payments are "fried into the cost of a Big Mac", says Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability & Research (CICTAR).

"A significant part of the menu price customers pay does not go towards the cost of food products, packaging and labour," said the 2022 report he co-wrote with advocacy organisation War on Want.

"It instead pays for the intellectual property and McDonald's brand."

While these payments are within the bounds of Australian tax law, it is hard to justify applying intellectual property to a hamburger, Mr Ward argues.

"The phrases 'intellectually property' and 'hamburger' shouldn't be used in the same sentence," he told the ABC, joking that "it must be in the special sauce".

These royalty fees are contributing to the cost of every burger, according to Mr Ward. But they could also be obscuring the role of corporate profits in pushing those prices up even further.

When you buy a burger, as we've seen, some of that money goes to paying for wages, ingredients, utilities, royalty fees and more.

What's left over contributes to the company's bottom line: McDonald's Australia profits.

In 2020, the company's profits fell 30 per cent compared to 2019.

Looking at that drop, it would seem like the pandemic hit the burger chain hard, with sales falling off a cliff as cities went into lockdown and parts of the economy ground to a halt.

But that isn't what happened at all.

McDonald's Australia sales actually edged upwards (while profits were plummeting) in 2020 — and continued to rise in the years that followed.

The real reason for the drop in profits was a change in company policy that meant a smaller share of the money spent on Big Macs stayed in the country.

McDonald's royalty fees, which redirect profits overseas, went up by 29 per cent that year — more than 10 times faster than its sales did.

By shifting more of its profits overseas, McDonald's muddied the waters about what is driving prices higher back home, and whether profit-taking has played a role.

When the Reserve Bank — the institution tasked with controlling inflation — concluded last year that corporate profits weren't a "significant independent driver of inflation" in Australia, it based its analysis on "domestic profits".

This means that its findings relied on a key assumption: that profits stayed on shore.

What does this mean for the price of a burger?

When all you want is a cheap burger, this discussion of intellectual property and company-wide sales might feel pretty abstract.

But this is the reality of the modern economy.

Multinationals in all sorts of industries, from big tech to big pharma, shift billions of dollars in profits offshore every year.

The same companies often dominate markets and insulate themselves from fluctuating costs by signing long-term contracts with suppliers.

All this combines to mean that the prices Australians pay at the counter aren't entirely driven by every twist and turn in the price of cheese, bread or beef.

Instead, it's a confluence of market forces, with a sprinkling of financial accounting, that set prices.

At the end of the day, McDonald's has to balance these global forces with a more localised one: how much people will pay for a burger.

"Inflation's everywhere," Dr Risse says. "Maybe customers are more forgiving [of higher prices]."

But people can only afford so much, particularly when the Reserve Bank has been keeping interest rates high.

While the burger chain continues to expand in Australia, its global sales are down for the first time since the pandemic, a sign of how higher prices can become too much in difficult economic times.

This is why interest rates are an effective tool for lowering inflation — when budgets are stretched, competition heats up to attract value-conscious diners.

"Hopefully [McDonald's] prices go down because just for a small meal, it's 12 bucks already," one teenage Sydneysider told the ABC as they ate their meal. 

"They have some good deals, which kind of shows that they could lower the prices a bit."

About the story

• Read the full statement from McDonald's Australia here.

• Big Mac prices were sourced from The Economist's Big Mac Index data. (The exact price at individual stores across Australia can vary.)

• Historical minimum pay for the Fast Food Award is available via the Fair Work Commission's calculator.

• McDonald's Australia sales and profits were retrieved from Company 360, which collates data from ASIC lodgements.

• All other data series were from the official ABS inflation data.

• The COVID-19 pandemic period was identified as between the start of the initial country-wide lockdown in March 2020 and the end of Melbourne's final lockdown in October 2021.

Credits

• Reporting and development: Julian Fell
• Design, photography and illustration: Teresa Tan
• Editing: Matt Liddy
• Additional reporting: Alison Xiao