How to measure inflation?
The Christmas Price Index.
Whereas the BLS (Bureau of Labor Statistics) Consumer Price Index includes food and medical care and cars, PNC Wealth Management’s CPI, its Christmas Price Index, has swans and hens and dancing maids. This year, the PNC market basket, filled with the 364 gifts in ”The 12 Days of Christmas,” would cost you $107,300 while last year, the total was $101,119.84. Its 6.1% increase far exceeds the 1.8% CPI change from November 2011 to November 2012.
Prices that remained the same:
- the partridge
- turtle doves
- calling birds
- milking maids
- dancing ladies
- leaping lords
Prices that increased:
- pear tree
- French hens
- gold rings
- piping pipers
We could hypothesize that an unchanged $7.25 minmum wage kept most of the labor expense steady while soaring commodity prices for corn and other bird feed pushed up the price of the hens.
Our bottom line: The inflation rate depends on what you place in your market basket.
A final fact: Called the rule of 70, you can calculate how long it will take a certain statistic to double by dividing 70 by the growth rate of that variable. For example, if the growth rate of prices is 2%, just divide 70 by 2 to see that prices will double in 35 years.
Sources and Resources: At the PNC Christmas Price Index site, you can participate in an interactive animation of the index and check out how it has fluctuated during the past 29 years. For a good summary of this year’s data, I suggest USA Today while to see the US CPI, you can go to BLS data, here. Also, Econlife has looked at the PNC index for 2 years, here and here.
You might want to check the CPI (the Christmas Price Index). Calculated by PNC for the last 28 years, it tells us the value of the items in “The 12 Days of Christmas.”
This year, the PNC CPI totaled $24,263.18 for anyone purchasing one set of each item. Repeating each item as the song suggests brings cumulative spending (364 gifts) to $101,119.84. At the PNC CPI site, you can see a whimsical interactive animation of the index and check out how the index has fluctuated since it began.
Here is last year’s econlife look at the index.
The Economic Lesson
This year, the annual increase for the song’s gifts, 3.5% was the same as the change in the CPI, end of October 2010-end of October 2011.
Looking specifically at the Christmas Index, we would see that prices varied. The ladies and maids prices were stable while the 7 swans-a-swimming at $6300, were 12.5% more than last year. (Petsmart was one source of PNC’s prices.)
An Economic Question: You can calculate how long it will take a certain statistic to double by dividing 70 by that number. For example, if the inflation rate is 3.5%, how long will it take prices to double? (You can see why economists target an inflation rate that is closer to 2%.)
You might want to check the CPI…the Christmas Price Index. Calculated by PNC for the last 27 years, it tells us the value of the items in “The 12 Days of Christmas.”
This year, the PNC CPI totaled $23,439.38 for anyone purchasing one of each item. Repeating each item as the song suggests brings spending to $96,824. At the PNC CPI site, you can see a whimsical animation of the index here and check out how the index has fluctuated since it began.
The Economic Lesson
As economists, we should ask why the annual increase for the song’s gifts was 9.2% when the inflation rate has been closer to 1%.
Looking specifically at the Christmas Index, we would see that most items were more expensive. The golden rings, for example, were up by 30%. We confirmed the increase here; the price of a troy ounce of gold, since January 2010, skyrocketed by 30% or so, moving from close to $1100 to approximately $1400. The biggest percent price jump, though, was the 3 French hens that, at $150, were 233% more than last year.
By contrast, for the CPI, there was much more variety. Looking specifically, the contents of the CPI market basket appeared to offset each other. Fresh fruit, for example was cheaper while fresh vegetables were more expensive. The prices of new cars tended to decrease while used cars cost more.
Using the rule of 70, a 1.1% annual inflation rate implies that prices will double (and currency value will halve) in 63 years. By contrast, an inflation rate of 5% means prices will double in 14 years. You can see why economists target an inflation rate that is closer to 2%.