It’s Christmas shopping time again, everybody’s favorite task — no, not really.
However, there is one generous lad who really must have enjoyed it, that “True Love” in the classic Christmas carol, “The Twelve Days of Christmas.” That “true love” obviously was financially able to manage showering an unusual set of costly gifts upon the object of his affection.
Prices were of no apparent consideration to the generous gift giver of the song. But they are important to typical consumers. The U.S. Bureau of Labor Statistics tracks prices with a number of indices, the most familiar of which is the consumer price index, a weighted average of a basket of consumer goods.
However boring the study of price indices, they have many consequential uses, including cost of living adjustments for Social Security payments, and adjusting brackets for income tax tables. For example, annual cost of living adjustments for social security payments are intended to maintain purchasing power that would otherwise be eroded by inflation. And without adjusting tax brackets for inflation, tax payers would gradually move into higher tax brackets simply due to increases in monetary income — known as “bracket creep” — while not realizing increases in real (inflation adjusted) income.
For some 35 years, economists at PNC Wealth Management of Pittsburgh, Pennsylvania, have constructed the Christmas Price Index that tracks prices of the items in the song, “The Twelve Days of Christmas.” The PNC exercise injects some levity into the mundane topic of index numbers. Besides, it is interesting to compare the Christmas price index with BLS statistics.
Let’s compare 2018 vs. 2017 prices of the items in the song.
The cost of the Partridge in a Pear Tree increased slightly due to an 18 cent increase in cost of the Partridge, from $20.00 to $20.18. The cost of the pear tree remains flat at $199.95, for total cost of $220.13.
Many of the birds of the song remained unchanged from 2017. The two turtle doves remained at $375. The three French hens remained at $181.50. The price of the four calling birds remained at $599.96.
The Five Golden Rings were the only item that decreased in price, from $825 in 2017 to $750 in 2018 for a 9.1 percent decline. Gold prices vary inversely with the strength of the US dollar.
The six geese-a-laying represent the most significant percentage increase of the song’s items, from $360 to $390, for an 8.3 percent increase. No explanation is offered for this increase, but it suggests some combination of increased demand and decreased supply. There is no indication of the specific factors familiar to economics students that affect demand and supply. As the market for geese approaches what economists refer to as a “purely competitive market,” there are no apparent indications of market manipulation or nefarious supply control that would account for the price increase.
The seven swans-a-swimming represent the most costly, and normally the most volatile, item of the song. But in 2018 they price out at $13,125, unchanged from 2017.
The eight maids-a-milking are the least costly of the items, pricing out at a mere $58, unchanged from 2017. As the old saw goes, life is not fair. Those hard-working maids-a-milking arguably have the most unexciting, boring, task, typified by just plain drudgery. But then those of us who have had actual experience at that task have long known that returns to agricultural labor are low. That dismal fact was instrumental in many of us seeking alternative employment.
The nine ladies dancing experienced the sixth successive year with no increased remuneration for their considerable talent. Their returns remained constant at $7552.84 — rather surprising that their pay remains constant in the “year of the woman.”
The male performers managed better, the 10 lords-a-leaping enjoying a three percent bump bringing their remuneration up to $10,000 in 2018, a 3 percent increase.
The musicians also fared better. The 11 pipers piping enjoyed a 3.5 percent increase, reaching $2,804.40 from their 2017 returns of $2,708.40.
The 12 drummers drumming also enjoyed a 3.5 percent increase over 2017, from $2,934 to $3038.10.
The total cost of all these items comes to $39,094.93, representing an increase of just under 1.2 percent over $38648.49 in 2017. This 1.2 percent increase of the Christmas price index compares to the 2.5 percent year over year increase of BLS CPI.
The seven swans-a-swimming, the most costly item of the song, bear a disproportionate weight in the Christmas price index. The stability of the price of this item holds down the index.
The BLS computes a “core CPI” that omits the volatile food and energy components. The PNC also computes a “core index” that omits the seven swans-a-swimming, normally the most volatile item, although in 2018 their price remained unchanged. Leaving out the swans-a-swimming, the Christmas price core index is 1.7 percent, compared to the BLS core CPI of 2.1 percent
There is yet another wrinkle to this exercise, namely that the song’s affluent true love confers these gifts over and over throughout the 12 days. Rather than a “mere” set of 12 gifts, repetitive gifting results in a total of 364 gifts. This amount totals to a hefty $170,609, an increase of $781.94 over 2017.
As the BLS CPI has risen and the economy by some measures is strong, the fed has been gradually increasing short term interest rates. However, Fed Chair Powell’s recent statement that rates are approaching “neutral,” along with the recent stock market swoon, suggest to some observers that the fed may not come through with the widely anticipated December increase. But trying to guess future fed actions is an exercise in futility.
As 2018 fades, there are plenty of troubles on the horizon that could bring this long-in-the tooth expansion and rising financial markets to an inglorious end.
Meanwhile, Merry Christmas to all.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
