14.12.2016 : Vaibhav Gandhi

Why Christmas may be more expensive than last year

Christmas is celebrated around the western world, and what better way to be ‘jolly’ than to spend money on - and with - your family and friends? People ask each other every year how are they going to celebrate (spend); and December continues to be the most profitable month for businesses around the world.  But what is it actually costing you?  

As per the SAS survey 2015, most buyers from Australia, Canada, NZ, UK and the USA spend their money on Toys/Games, Clothing, Cosmetics/Fragrance, Jewellery, Consumer Electronics and sporting goods.

Shoppers are planing to buy
  • Toys/Games 60%
  • Apparel/Accessories 54%
  • Books, Music or Movies 48%
  • Cosmetics/Fragrance 39%
  • Jewellery 36%
  • Consumer Electronics 35%
  • Household Goods 34%
  • Sporting Goods 22%

 

If we look at key inflation numbers published by the NZ Central Bank, the inflation between Quarter 3, 2015 to Quarter 3, 2016 stands at 0.4%. But the devil is in the detail! The inflation in the goods widely consumed during the festive season shows massive variance.

For example, in year on year comparisons:

  • Toys/Games went up 1.7%, with 0.55% weightage in the Consumer Price Index (CPI) basket
  • Clothing went up 0.3%, with 3.38% weightage in the CPI basket (Includes price increase in clothing accessories 4.1%, men’s clothing 1.5%, and women’s clothing -1.1% and kids clothing 3%)
  • Jewellery and watches went up 2.4%, with 0.24% weightage in the CPI basket
  • Consumer electronics such as telecommunication equipment went down by 15% with 0.23% weightage in the CPI basket; whereas computing equipment went down by 2.5%, with 0.34% weightage
  • Household appliances went up 4.7%, with 0.7% weightage in the CPI basket
  • Sporting goods had an increase of 1.4%, with 0.42% weightage in the CPI basket.

So at the macro level, the inflation growth seems to be in line with the productivity increase. However, the actual felt inflation may vary from person to person. 

Why is there such a difference in felt inflation and actual inflation?
 
  1. The weightage in the CPI bucket. CPI tracks 11 Groups and 45 subgroups of a total 700 items or services to derive the inflation. It allocates the weight to each item in the CPI bucket. Due to smaller weighting, a few items or services don’t get proper representation in the basket. The fluctuation in the price of this item or service may not affect all individuals equally.
  2. Loopholes in the ‘basic smell’ test.  Innovation in products and services is ignored. Aspects such as innovation, obsolescence and fashion trends can pull down the price of items or services in the bucket. These issues are usually addressed during the index reviews, but the shorter life cycle of this product makes it difficult to measure.
  3. International factors. Currency fluctuation and inflation in the country of origin also impacts the consumers. Due to dynamic nature of international trade, the impact of this factor on actual felt inflation is hard to tell.

In conclusion, the actual felt inflation may vary from person to person, as a direct result of different consumer behaviour. The published CPI may represents the bigger picture, but it is also important to consider the impact of its components.

So if you’re feeling the squeeze more than last year, take good look at what’s in that shopping basket!

About the Author

Vaibhav Gandhi

Valuer

Vaibhav is a plant and machinery valuer from Mumbai in India who recently moved to New Zealand. He is passionate about everything on wheels, including office wheelchairs.

Ignite Your Thinking

What Do You Think?

ADD A COMMENT