By allowing ads to appear on this site, you support the local businesses who, in turn, support great journalism.
John Waelti: Cost of 12 Days of Christmas remains stable
Placeholder Image
The economy is in a sort of "ho-hum" status. It's a lot better than in 2008 when President George Bush handed over to President Barack Obama the worst economy since the Great Depression. But it's easy to see why there is a lot of discontent with its performance. While the unemployment rate is down, wage growth is stagnant. The disparity of income and wealth continues to increase. A broad spectrum of the economy has not received the fruits of increased productivity.

The Federal Reserve Bank and its chairman, Janet Yellen, are criticized for the Fed's expansionary monetary policy because of fears that it would be inflationary, and because it hasn't done more to promote economic growth. The facts are that there is only so much the Fed can do. Low interest rates and an expansionary monetary policy is the right course for a stagnant or slowly growing economy. And the inflation feared by the Fed's critics has not come to pass.

Fed Chair Yellen is targeting the very sensible goal of a 2-percent inflation rate. The inflation rate as measured by the Bureau of Labor Statistics consumer price index (CPI) is still well below that target. As is often the case with economic data, there are both negative and positive consequences. A negative consequence of low inflation is that social security recipients will receive no cost of living allowance in 2016, even though cost of some individual items increase. A positive consequence is that some prices, such as gas at the pump, remain low.

The low inflation rate is reflected in the 32nd annual PNC Wealth Management Christmas Price Index that tracks prices in the song, "The Twelve Days of Christmas." Although these items bear little resemblance to the shopping habits of the typical consumer, the index brings some levity to the mundane exercise of reviewing index numbers. And, perhaps surprisingly, the Christmas Price index is often not that far off from the familiar CPI.

Let's take a look at the items in that familiar song.

The Partridge, its price increasing from $20 to $25, is among the few items that increased by a significant percentage, 25 percent.

The Pear Tree inched up from $188 to $190, resulting in close to a 3.5-percent increase for the combination of a Partridge in a Pear Tree. However, this item is so small relative to the total cost of gifts of the song that it bears little effect on the index.

The cost of the Two Turtle Doves increased from $260 to $290, for an 11 percent increase - again a significant percentage increase but bearing little weight relative to total cost of the twelve items.

The cost of the Three French Hens remained unchanged at $181.50.

The cost of the Four Calling Birds remained unchanged at $600.

The cost of the Five Golden Rings remained unchanged at $750 even though the price of gold has decreased.

The cost of the Six Geese-a-Laying remained unchanged at $360.

The cost of the Seven Swans-a-Swimming remained unchanged at $13,125. OK, this is getting boring. Maybe it's a good time to remind ourselves that as these more costly items that disproportionally affect the index remain stable, this tends to negate the increases of the smaller items in the index, thus keeping the total index from changing significantly.

The cost of the Eight Maids-a-Milking remained stable at a mere $58. Those of us with farm backgrounds have long been accustomed to low returns to agricultural labor.

Even though the Nine Ladies Dancing fare better than the unfortunate Maids-a-Milking, they too, received no increase in compensation. It remained stable at $7,553.

The Ten Lords-a-Leaping apparently successfully renewed their contract. They enjoyed a 3-percent increase, from $5,348 to $5,509 according to the Philadelphia Dance Studio.

The compensation of the musicians remained stable; the cost of the Eleven Pipers Piping at $2635, and the Twelve Drummers Drumming at $2855.

The total of the 12 gifts tallies up to $34,131 compared to the $33,933 of last year, making for a mere .6 percent increase. This modest increase is greater than the .2 percent annual increase of the CPI.

Just as the U.S. Bureau of Labor Statistics compiles a "core index," omitting the volatile food and gasoline prices, the Christmas Price Index compiles a "core index," omitting the usually volatile (but not this year) price of the Seven Swans-a-Swimming. By omitting the Swans from the Christmas Price Index, the index rises to a 1-percent annual increase compared to the BLS core index of a 1.9 percent annual increase.

Recall that the affluent, if somewhat over indulgent, True Love in the song showers his gifts not just once, but repeatedly over the 12 days of Christmas. By repeatedly purchasing these gifts, the bill runs up to a hefty $155,407. This compares with $154,508 of last year, for a .6-percent increase.

Although inflation as measured by either the consumer price index or the Christmas price index is well below the Fed's target inflation rate of two percent, there is increased speculation that the Fed will raise the Federal Funds rate at their December meeting. By the time this is published, we will know.

While the economy is not exactly robust, a mere .25 percent increase in interest rates should be tolerable. Besides, the Wall Street gurus who are as nervous as a cat in a room full of rocking chairs over this should already have, so to speak, baked a small increase in interest rates into the Christmas pie.

Meanwhile, let us not chastise the Fed for not single handedly accomplishing what it is not equipped to accomplish by itself. Keeping interest rates low is the correct policy, reinforced by the fact that the inflation predicted by the Fed's harshest critics has not occurred - this reinforced even further by the whimsical Christmas Price Index.

With that, Merry Christmas to my loyal readers.

- John Waelti of Monroe, a retired professor of economics, can be reached at His column, which is published on Fridays, will resume Jan. 8.