Saturday, December 1, 2007

An Inflation Assertion

I find that Avner Mandelman writes a pretty good columnn for the Globe. However, that's not really saying much, because he writes about investing, a topic about which I know relatively little.

However, he ventures out today with the bold assertion that Canadian inflation is running at 6-8%, and has been doing so consistently for some time. He bases this on examples; dinner at a restaurant, plane tickets to Paris, yogurt.

Since his examples are from the early 80's, and inflation hasn't been 2-3% for all that time, obviously you'd suspect to for these prices to have increased by more than 2-3% annually over 25 years. Plus, these are bad examples - oil prices, increases in demand consistently above the rate of economic growth, etc.

Further, any introductory macro course will probably talk about the inherent upward bias in the CPI, which stems predominately from the availability of substitutes and quality improvements.

Finally, if inflation is really 6-8%, what the heck are the army of statisticians charged with measuring the CPI actually taking into account? While I'm not a big fan of Statscan, they're not incompetent, and aren't just making up prices off the top of their heads.

Now, I was born in late '86, so I certainly can't quote prices from 1982, but the product with the longest track record in my addled mind conforms well to a 2-3% target: Two liters of Pepsi.

POSTSCRIPT: Perhaps more of a concern, he does assert that most people view inflation in the 2-3.5% range - what he ascribes as the common view. I'm becoming increasingly worried that 2% inflation is seen as license for the Bank of Canada to hit the gas. That 2% needs to be lowered to 1%.

POST-POSTSCRIPT: Honestly, I am actually studying for exams. Really.

1 comment:

Rickk said...

Food Timeline- Historic food prices

Coca Cola and Pepsi prices

"Tracing price histories for specific products (even ones as famous as Coca Cola and Pepsi) can be a complicated project. Why? Point of purchase (vending machine, grocery store, restaurant, army PX?), product size (10 ounce cans, 8 ounce glass bottles, 2 litre plastic bottles), and economic factors (sugar availability) all play significant roles. Most products do not maintain a uniform presence throughout the years. Unless the company itself has conducted such a study, the best you can do is approximate. If this is the case, base your study on price per ounce rather than container.

[1887-1959] According to the book Value of a Dollar the price of Coca Cola (by the glass or bottle) was five cents. This book extracts its information from advertisements.

[1942] Advertisement placed in the Daily Record [Morristown, NJ] newspaper, Pepsi .05/bottle
[1944] Daily Record, Coca Cola, .05/bottle
[1945] Daily Record, Pepsi, .23/six 12 ounce bottles
[1968] Value of a Dollar, Pepsi, .59/6pack of 10oz bottles
[1972] Daily Record, Pepsi, .69/six-pack 12 oz cans
[1974] Daily Record, Pepsi Cola, .88/6 12oz cans
[1982] Daily Record, Coke, .99/1 litre bottle
[1985] Daily Record, Pepsi, .89/2 litre bottle
[1992] Daily Record, Coke, 6.98/two 12-packs 12 oz cans
[1994] Daily Record, Coca Cola, 3.99/two "12" packs
[1995] Daily Record, Coca Cola, .59-.99/2 litre bottle
[2002] Daily Record, Coca Cola .99/2 litre bottle
[2005] Daily Record, Coca Cola, 1.09/2 litre bottle

An Analysis of Consumer Prices in 2005

Statistics Canada

Non-durable goods prices up again

"The non-durable goods index, which includes items such as food, gasoline, natural gas, oil, electricity and cigarettes, rose 3.9% in 2005. Since 1998, producers and suppliers of these commodities have been passing on average price increases of 3.9% per year—the highest rate of inflation for any of the goods or services groupings.

Besides energy-related items and cigarettes, non-durables such as dairy goods outpaced the All-items CPI in 2005. Prices for dairy goods shot up early in the year after the Canadian Dairy Commission increased the floor prices it paid for skim milk powder 6.2% and butter 9.1% to help producers cover costs and recover from the financial effects of the mad cow crisis,13 Provincial marketing boards followed suit, adjusting their minimum and maximum prices, and for the year, the butter index was up 9.2%, cheese prices increased 6.6%, and fresh milk prices were up 4.4%.

Other foods held non-durable prices down: fish and seafood prices dropped 0.8%, fresh fruit prices fell 0.5%, and meat and poultry prices fell fractionally, down 0.1% in 2005."