However tedious, economic statistics are useful. Banks, corporate management, private investors, and professional money managers rely heavily on them. These statistics are used by the Fed and government policy makers.
The Bureau of Labor Statistics of the U.S. Department of Labor compiles numerous indices relating to economic activity. The most familiar and oft-cited is the Consumer Price Index (CPI). As only one of many price indices, this is technically the CPI-W, a measure of average change over time in prices paid by urban wage and technical workers for a market basket of consumer goods and services.
Since 1984 the PNC Asset Management Group, and its predecessor PNC Bank, has compiled the Christmas Price Index that tracks prices of gifts bestowed by the True Love featured in the song, “The Twelve Days of Christmas.” What began as a holiday message to the bank’s clients has continued as a tradition, an entertaining way of educating students and entertaining citizens in the construction and features of a price index.
Because of the pandemic, the dancers and musicians featured in the Twelve Days of Christmas were unable to provide live performances in 2020. Therefore, the prices of the gifts in 2021 are compared to the prices of 2019. As would be expected, with recent inflation, prices have risen. Let’s compare these prices of 2021 with 2019.
The price of the Partridge in a Pear Tree has risen by a hefty six percent, from $210.17 to $222.68. While the Partridge remains priced at $20.18, the price of the tree has risen from $189.99 to $202.50.
From here, it gets more dramatic. The Two Turtle Doves price out at $450, compared to $300 in 2019, for a fifty percent increase. The Three French Hens also saw an increase, pricing out at $255 relative to the $181.50 of 2019 for a 40.5 percent increase.
The price of the Four Calling Birds remained at $599.96. No explanation other than “market volatility” is offered for the rise in prices of the Turtle Doves and the French Hens relative to the price stability of the Calling birds.
Gold is generally seen as a hedge against inflation. The cost of the Five Golden Rings has risen, from $825 in 2019, to $895 in 2021, for an 8.5 percent increase.
As with the Two Turtle Doves and the Three French Hens, the price of the Six Geese-a-Laying has increased — from $420 in 2019 to $660 in 2021 for a hefty increase of 57.1 percent.
The most costly gift in the song is the Seven Swans-a-Swimming. Fortunately for the generous True Love, the price of the swans has remained stable, although at a stinging $13,125.
For most organizations, labor costs dominate. However, in this song, an exception is the Eight Maids-a-Milking, whose total compensation is a paltry $58. Those of us who grew up milking cows continue to be amazed at the robotic technology by which cows are now milked, and even fed individual rations compiled and measured out by computer. It’s incredible that our True Love was able to find Eight Maids-a-Milking willing to undertake this task at any price, let alone for a measly $58. Let’s appreciate this longing to revisit more quaint times.
The price of the Nine Ladies Dancing remained the same as in 2019, at $7,552.84.
In contrast to the Nine Ladies Dancing, the Ten Lords-a-Leaping received $11,260, up from $10,000 in 2019, for a comfortable 12.6 percent increase. Did they have more bargaining power, or a more active union, than the Ladies Dancing? Let’s hope it was not gender discrimination.
Although a greater bargain than the dancers, the musicians enjoyed an increase in remuneration. The Eleven Pipers Piping saw an increase of 7.1 percent, up from $2,748, to $2,943.83. The Twelve Drummers Drumming enjoyed an increase, from $2,972.25 to $3,183.47, for their 7.1 percent bump.
These costs total $41,205.58 compared to $38,993.59 in 2019, an increase of 5.7 percent that our generous True Love is willing to bestow upon his object of affection. But wait — there’s more. Those familiar with this song will recall that these gifts are awarded repeatedly over the Twelve Days of Christmas. By repeating this gifting, the total comes to $179,454 and change, compared to $170,298 in 2019, for a 5.4 percent increase.
At this point, an instructor teaching a class on index numbers would ask the students to explain why the 5.4 percent for repetitive gifting is less than the 5.7 percent for the one set of gifts, and why both are less than the 6.8 percent of the CPI-W used to compute the annual Social Security Cost of Living (COLA) increase for 2022.
This is where the issue of weighting and composition comes in. The alert student would recognize that as the Six Geese-a-Laying are by far the costliest item in the index, they bear a disproportionate weight, or influence, on the index. As the cost of this heavily weighted item remained stable, its repetition kept the index lower than when it was only used once.
And, of course, the composition of the Christmas Price Index is very different than the market basket of goods of typical consumers.
Is examination of weights and composition of index numbers merely an elementary exercise to challenge students? No, weights and composition of index numbers have practical consequences.
Some critics argue that the CPI-W used for adjusting the Social Security COLA overstates inflation. They assert that a “chained index” should be used to account for changes in consumer behavior to account for rising prices. If price of beef rises, they purchase a lower cost item, for example.
Other critics assert that since healthcare costs account for a greater share of expenditures for Social Security recipients than for the population at large, the CPI-W understates inflation realized by seniors. Therefore a specialized index designed for seniors should be used for the Social Security COLA.
But that’s a debate for another day. Meanwhile, we can admire the creativity and ability of our True Love to award these gifts to the object of his affection.
— John Waelti’s column appears monthly in the Times. He can be reached at jjwaelti1@tds.net.
