Starbucks Index Definition
Starbucks Index is an index representing the purchasing power of each national currency using the price of Starbucks tall latte. The index published by The Economist is based on the theory of purchasing-power parity. This theory says that exchange rates should move towards levels that equalize the prices of a basket of goods in different countries, for example a dollar should buy the same everywhere. The purchasing-power parity is calculated by dividing the local currency price of a latte by its dollar price. These rates are then compared with actual exchange rates to find out whether a currency is undervalued or overvalued.