Sep 23 2013, 09:35 PM, updated 13y ago
sauce - Wall Street Journal, September 23rd, 2013
Consumers in Argentina pay the most globally for an iPad, more than double the cost in Malaysia, the world’s cheapest place to buy the Apple Inc. product.
A customer wearing a mask designed to resemble late Apple Inc. co-founder Steve Jobs holds up a portrait of Mr. Jobs on his iPad outside an Apple Store in Tokyo on Sept. 20, 2013.
A 16-gigabyte iPad with Wi-Fi and a retina display sells for $1,094.11 in Argentina, compared with $473.77 in Malaysia, according to CommSec, a unit of Australia’s Commonwealth Bank.
Other expensive places to buy an iPad include northern Europe and Latin America. (Brazil: $791.40; and Denmark: $725.32.)
CommSec has been keeping an iPod index since 2007 (it later added the iPad) as a way of monitoring whether currencies are valued appropriately.
The index is a way of exploring the economic concept of purchasing power parity. That is, a good should trade at the same price in different countries when expressed in the same currency given free markets.
In theory, price differentials between countries are not sustainable in the long run because of market forces that will prompt consumers and businesses to shop overseas for cheaper products.
But in reality, a number of factors, including import restrictions, freight and travel costs and local taxes mean the market does not work perfectly.
CommSec uses its table of prices to get a hint of whether currencies are in line with economic fundamentals. The currency of a country where goods are cheap relative to the rest of the world should rise as foreigners demand that currency to take advantage of arbitrage opportunities. In other words, that currency is undervalued.
CommSec looks at the Australian price of the iPad to see whether the Australian dollar is fairly valued.
Not surprisingly, the results are not clear-cut. The iPad costs $506.66 in Australia, the sixth cheapest place to buy the product in the world after Malaysia, Canada, the U.S., Hong Kong and Japan.
The cost of the iPad in Australia divided by the cost in the U.S. ($499) suggests a purchasing power parity exchange rate of around 1 Australian dollar per U.S. dollar.
The Australian dollar currently buys 94 U.S. cents, suggesting the currency is undervalued.
But looking at prices in China ($602.52), where many iPads are manufactured, Australia’s currency looks too costly. CommSec said it believes the results of its study roughly show the currency is currently fairly valued.
The Reserve Bank of Australia believes the Australian dollar is overvalued – the result of a decade-long mining boom.
The currency fell in August to a three-year low below 0.90 to the U.S. dollar as investors fretted about a falloff in global demand for Australia’s commodity exports. It has strengthened since then to a three-month high of $0.94.
A weaker dollar would help make Australia’s non-mining exports more competitive, taking up the slack from a falloff in mining activity.
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