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The Christmas Price Index

Dec 24, 2010 • Demand, Supply, and Markets, Economic History, Macroeconomic Measurement • 170 Views    No Comments

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%.

 

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