PNC’s Christmas Price Index

Dec 22, 2015

 

In the spirit of the holiday season, let’s talk about something that concerns all of us while we’re out shopping for presents:prices

On November 30, 2015, PNC Bank released its 32nd annual “Christmas Price Index,” a tongue-in-cheek economic tool that showed a price increase of 0.6% since last holiday season. This index follows the price of one set of each of the gifts given in the song “The Twelve Days of Christmas.” In other words, it adds together the cost of a partridge, a pear tree, two turtle doves, three French hens, four calling birds, and so on. For the sake of consistency, they obtain the prices from the same places every year. This tradition started in 1983 as a way to engage clients during the traditionally light holiday weeks.

A price index measures changes in prices of a certain bundle of goods in order to summarize information on prices over time. A price index can be used to measure inflation to answer the question “How much more income would consumers need to be just as well off with a new set of prices as the old?” The Consumer Price Index (CPI) is a standard measure calculated by the Bureau of Labor Statistics that is often used to measure inflation or to formulate economic policy. The CPI measures changes in prices of goods and services such as housing, food, clothing, and transportation, and is intended to reflect the spending habits of the average American.

PNC’s Christmas Price Index uses a similar method, with a much smaller bundle of goods, to whimsically estimate how much more we will spend on gifts this year than we did last year. Since December 2014, gift costs have remained relatively flat. The cost of one partridge in a pear tree increased 3.5% due, in part, to “high demand” for partridges and “a modest cost-of-living increase." The price of two turtle doves rose 11.5% this year due to increased grain prices. The salaries of male ballet dancers increased by 3%, so ten lords-a-leaping cost slightly more. But other than these three presents, prices remained relatively flat, leading to an overall increase of just 0.6%—the lowest growth rate in six years. In case you’re curious about the prices of all of the presents in the song, the table below breaks down the price index by present.

You’ll notice that the table includes two other measures of holiday prices. The “Trust Cost of Christmas” represents the cost of the presents if you repeat them every day, the way the song does. So on the first day, you give your True Love a partridge in a pear tree. On the second day, you give your True Love not only the two turtle doves, but also another partridge in another pear tree. On the third day, you give your true love three French hens, two more turtle doves, and another partridge in another pear tree. And so on for the rest of the song. So as opposed to buying only one partridge, you buy twelve, along with twelve pear trees, twenty-two turtle doves, etc.

The “core” price index leaves the seven swans-a-swimming out of the calculation because the price of a swan fluctuates much more than the prices of other goods. Therefore, changes in the price of swans may swamp changes in the price of presents in general. Similarly, the CPI leaves food and energy out of their “core” index because their prices fluctuate more than most prices do and those fluctuations may mask trend of prices in general. Of course, it is still important to follow the prices of these categories of goods, as long as the volatility of their prices is taken into account.

Interestingly, in many years changes in the Christmas Price Index follow changes in the CPI. From November 2014 through October 2015, the CPI noted a measly 0.2% increase in prices compared to a 0.6% increase estimated by the Christmas Price Index. When excluding the products with the most volatile prices (energy and food for the CPI; swans for PNC), PNC found a 1% increase in prices, compared to the 1.9% increase estimated by the CPI.

For us shoppers, it looks like we’ll be spending more than ever again this year, but by a smaller margin than in previous years thanks to modest inflation over the past 12 months. And if you want to buy your True Love each day’s present, you’ll have to pay $198 more than last year for a total of $34,130.99. If you want to follow the song precisely and give your True Love all 12 days of presents—with repeating gifts—you’ll have to shell out $155,407.18.

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