Among the unheralded, but essential, tasks performed by the federal government is compiling price statistics. Among the most quoted is the consumer price index, referred to as the CPI.
Political appointees and politicians normally spin these statistics to serve their interests. This is to be expected as we should not be shocked, shocked, that politics is being played here. Sometimes the numbers themselves are questioned as being representative of items purchased by consumers. Obviously, no index can be perfectly representative of every consumer. But there is no doubt that the professional statisticians at the U.S. Department of Labor's Bureau of Labor Statistics (BLS) make every effort at consistency and accuracy.
That does not prevent politicians from being politicians and spinning the numbers to their advantage, or, unfortunately, even questioning the motives of career government employees.
The technical details involved in constructing reliable price indices are complex, and rather boring. In an attempt at levity, and providing instruction regarding index issues, the PNC Bank of Pittsburgh, PA, has for 34 years compiled price statistics on the items in the song, "The Twelve Days of Christmas." While the items in the song are not typical of those purchased by consumers, it is interesting to compare the price movements of those items (the Christmas Price Index) with the CPI compiled by the federal government's BLS.
Let's take a look at the prices of the items in the Christmas Price Index for 2017. Interestingly, of the 12 items in the song, nine remained the same as last year.
The cost of the Partridge in a Pear Tree increased by 4.7 percent to $220. The increase is due to a 5.26 percent increase in cost of the Pear Tree, from $190 to $200. The price of the Partridge remained constant. While this is a hefty percentage increase, this item is small compared to other items and, therefore, bears little effect on the total index.
The cost of the Two Turtle Doves remained constant at $375.
There was no change in cost of the Three French Hens, remaining constant at $181.50.
Similarly, the cost of the Four Calling Birds remained constant at $600. Remarkably, there was no price inflation for any of the birds in 2017.
It was a different story for gold. After relatively stable prices of gold during the past several years, predictions of higher gold prices were finally correct. Higher gold prices resulted in a 10 percent increase in cost of the Five Golden Rings, to $825.
The cost of the Six Geese-a-Laying remained constant at $360.
The Seven Swans-a-Swimming are historically among the most costly and volatile of the 12 items. In 2017 the cost remained high, but unchanged from last year, at $13,125.
The price of the Eight Maids-a-Milking remained constant at $58. These unfortunate hard-working women are characterized as "unskilled labor" and are paid the federal minimum wage, unchanged since 2009.
Despite a growing economy, wages across the economy have remained stagnant. The Nine Ladies Dancing received no increase in compensation. Their wages, hence prices, have remained stable for some time, at $7,553.
In spite of stagnant wage growth, the Ten Lords-a-Leaping enjoyed a wage increase of 2 percent, bringing their compensation up to $5,619.
The musicians were not so fortunate. The Eleven Pipers Piping received $2,708.40. They had received a wage increase last year for the first time since 2013. But in this era of wage stagnation, they are in the same box as many others.
The same can be said for the Twelve Drummers Drumming. They had received a long-anticipated wage increase last year. This year, they must be satisfied with their $2,934.
The total cost of the 12 items in the song totals up to a hefty $34,558 and change, for an increase over 2016 of about $200. But wait - there's a catch. In the song, the items are given to his True Love repetitively over the 12 days. For the most generous giver to his true love, the cumulative cost of these 364 items comes to $157,558.
How do the price changes of the Christmas Price Index compare with the Consumer Price Index? The increase of one set of the 12 items in the Christmas Price Index is .6 percent compared to the 2.2 percent November year over year increase in the Consumer Price Index. If we take the cumulative cost of the 12 items in the song, we have only a .7 percent increase over 2016. The stability of the price of the birds, especially the Seven Swans-a-Swimming, is largely responsible for the modest inflation indicated by the Christmas Price Index.
The BLS also compiles a "core" CPI by eliminating food and energy prices in the index. The Christmas Price Index computes its "core" index by eliminating the Swans from the index. By these maneuvers, the Christmas Price "core" Index is .9 percent compared to the "core" CPI of 1.7 percent.
The Open Market Committee of the Fed has been keeping short term interest rates at historic lows for some time. This has doubtlessly been a factor in the improving economy. This strategy has been enabled by low inflation during the last several years. As the economy has been improving, the Fed has modestly raised interest rates in 2017.
Neither the Christmas Price Index nor the conventional CPI has indicated drastically rising inflation that would alarm the Fed. Nevertheless, with near full employment and an improving economy, the Fed will doubtlessly impose additional interest rate increases in 2018.
As always, the Fed faces the balancing act of keeping interest rates consistent with full employment, while keeping a wary eye on inflation that would auger for raising the rates. In spite of low inflation, we can expect the Fed to raise short term interest rates in 2018. Higher interest rates would work against inflation while allowing the Fed the slack to lower them again, should it be necessary.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in
the Monroe Times.
Political appointees and politicians normally spin these statistics to serve their interests. This is to be expected as we should not be shocked, shocked, that politics is being played here. Sometimes the numbers themselves are questioned as being representative of items purchased by consumers. Obviously, no index can be perfectly representative of every consumer. But there is no doubt that the professional statisticians at the U.S. Department of Labor's Bureau of Labor Statistics (BLS) make every effort at consistency and accuracy.
That does not prevent politicians from being politicians and spinning the numbers to their advantage, or, unfortunately, even questioning the motives of career government employees.
The technical details involved in constructing reliable price indices are complex, and rather boring. In an attempt at levity, and providing instruction regarding index issues, the PNC Bank of Pittsburgh, PA, has for 34 years compiled price statistics on the items in the song, "The Twelve Days of Christmas." While the items in the song are not typical of those purchased by consumers, it is interesting to compare the price movements of those items (the Christmas Price Index) with the CPI compiled by the federal government's BLS.
Let's take a look at the prices of the items in the Christmas Price Index for 2017. Interestingly, of the 12 items in the song, nine remained the same as last year.
The cost of the Partridge in a Pear Tree increased by 4.7 percent to $220. The increase is due to a 5.26 percent increase in cost of the Pear Tree, from $190 to $200. The price of the Partridge remained constant. While this is a hefty percentage increase, this item is small compared to other items and, therefore, bears little effect on the total index.
The cost of the Two Turtle Doves remained constant at $375.
There was no change in cost of the Three French Hens, remaining constant at $181.50.
Similarly, the cost of the Four Calling Birds remained constant at $600. Remarkably, there was no price inflation for any of the birds in 2017.
It was a different story for gold. After relatively stable prices of gold during the past several years, predictions of higher gold prices were finally correct. Higher gold prices resulted in a 10 percent increase in cost of the Five Golden Rings, to $825.
The cost of the Six Geese-a-Laying remained constant at $360.
The Seven Swans-a-Swimming are historically among the most costly and volatile of the 12 items. In 2017 the cost remained high, but unchanged from last year, at $13,125.
The price of the Eight Maids-a-Milking remained constant at $58. These unfortunate hard-working women are characterized as "unskilled labor" and are paid the federal minimum wage, unchanged since 2009.
Despite a growing economy, wages across the economy have remained stagnant. The Nine Ladies Dancing received no increase in compensation. Their wages, hence prices, have remained stable for some time, at $7,553.
In spite of stagnant wage growth, the Ten Lords-a-Leaping enjoyed a wage increase of 2 percent, bringing their compensation up to $5,619.
The musicians were not so fortunate. The Eleven Pipers Piping received $2,708.40. They had received a wage increase last year for the first time since 2013. But in this era of wage stagnation, they are in the same box as many others.
The same can be said for the Twelve Drummers Drumming. They had received a long-anticipated wage increase last year. This year, they must be satisfied with their $2,934.
The total cost of the 12 items in the song totals up to a hefty $34,558 and change, for an increase over 2016 of about $200. But wait - there's a catch. In the song, the items are given to his True Love repetitively over the 12 days. For the most generous giver to his true love, the cumulative cost of these 364 items comes to $157,558.
How do the price changes of the Christmas Price Index compare with the Consumer Price Index? The increase of one set of the 12 items in the Christmas Price Index is .6 percent compared to the 2.2 percent November year over year increase in the Consumer Price Index. If we take the cumulative cost of the 12 items in the song, we have only a .7 percent increase over 2016. The stability of the price of the birds, especially the Seven Swans-a-Swimming, is largely responsible for the modest inflation indicated by the Christmas Price Index.
The BLS also compiles a "core" CPI by eliminating food and energy prices in the index. The Christmas Price Index computes its "core" index by eliminating the Swans from the index. By these maneuvers, the Christmas Price "core" Index is .9 percent compared to the "core" CPI of 1.7 percent.
The Open Market Committee of the Fed has been keeping short term interest rates at historic lows for some time. This has doubtlessly been a factor in the improving economy. This strategy has been enabled by low inflation during the last several years. As the economy has been improving, the Fed has modestly raised interest rates in 2017.
Neither the Christmas Price Index nor the conventional CPI has indicated drastically rising inflation that would alarm the Fed. Nevertheless, with near full employment and an improving economy, the Fed will doubtlessly impose additional interest rate increases in 2018.
As always, the Fed faces the balancing act of keeping interest rates consistent with full employment, while keeping a wary eye on inflation that would auger for raising the rates. In spite of low inflation, we can expect the Fed to raise short term interest rates in 2018. Higher interest rates would work against inflation while allowing the Fed the slack to lower them again, should it be necessary.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in
the Monroe Times.
