By: Laura Walton AFC®
Turtle doves are up 11.5% while French hens, calling birds, geese and swans remain unchanged. Not the usual ticker tape recap but rather the 32nd annual PNC Christmas Price Index ® results!
In 1984, PNC Bank’s chief economist thought it would be fun to see how much the gift items in the 12 Days of Christmas might cost…and the tradition has continued every year since.
Not only is it a fun bit of whimsy, but it’s a great lesson in inflation.
Last week’s blog showed how compounding grows our money; this week’s blog shows how the inflation grinch shrinks our buying power.
Rebekah McCahan, Vice President and Investment Strategist at PNC Wealth Management, also gets to play Santa and gather the current prices for the 12 gifts. She checks with a national bird supplier for the partridge and doves, a hatchery for the hens and swans, a waterfowl farm for the geese, a pet chain for the calling birds, a nursery for the pear trees, a jewelry chain for the gold rings and so on…a daunting task made a lot easier thanks to the internet.
The bottom line? What cost $18,845.97 in 1984 costs $34,130.99 today, an 80+% increase. The increase is driven by supply and demand – higher demand for fewer goods drives prices up.
In general, the price of services has gone up faster than the price of goods. For example, the price of Nine Ladies Dancing is $7552.84 today, up nearly 400% while the cost of Five Gold Rings is $750, a 122% increase since 1984…that puts gold as an investment in perspective.
The 12 Days of Christmas is a fanciful slice of the broad Consumer Price Index (CPI) which tracks the following categories:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks); HOUSING (rent of primary residence, owners’ equivalent rent, fuel oil, bedroom furniture);
APPAREL (men’s shirts and sweaters, women’s dresses, jewelry);
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance);
MEDICAL CARE (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services);
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
Our challenge as savers and investors is to earn a return that not only matches but beats the rate of inflation represented by the CPI. If not, our retirement dollars will absolutely not be able to afford 12 Drummers Drumming when we’re 65!