April 14, 2008
Measuring Inflation By What’s in Our Baskets
By Bernice Hurst, Managing Director, Fine Food Network
Quite apart from functional foods, ready meals, convenience foods, fresh and healthy, free-from or whatever, the contents of the typical British shopping basket have recently changed to include fruit smoothies, fresh groceries and small type oranges. The Office of National Statistics (ONS) tracks consumer spending, using survey results to ensure that items on which people spend most have the biggest share of the basket. Its most recent study has also added muffins for the first time as representatives of the snacks generally purchased with coffee in cafes.
On
the non-food side, ONS says music purchasing has changed due to a preference
for downloading. Top 40 CD singles have been removed from the basket although
audio CDs remain and a new item, covering the nostalgic consumption of non-chart
‘classic’ albums, has been introduced.
Apparently lower prices on televisions
and improved technological reliability mean that consumers prefer replacing
worn TVs to repairing them, “which usually warrants a switch to HD-ready technology
and flat-panel televisions,” said ONS. Similarly, camera film has been replaced
by universal digital storage devices (such as USB sticks) which provide memory
capacity for cameras, mp3 players, mobile phones and computers. Digital cameras
and related media have been included in the basket since 2004. This year, 35
mm camera film has become as redundant as the 35 mm camera that fell from the
basket last year.
ONS collects about 120,000 prices every month for a ‘basket’
of about 650 goods and services. Prices changes are used to compile the two
main measures of inflation: the Consumer Prices Index (CPI) and Retail Prices
Index (RPI). The Bank of England uses the CPI as its inflation target while
the RPI is used to calculate increases in pensions and other state benefits.
Contents are reviewed annually and changes can be made for a number of reasons.
Some items enter the basket because spending on them has reached a level
that demands inclusion to ensure that the basket represents consumer spending,
some to improve coverage of particular categories with high variability in
prices and some to diversify the range of products collected for already
established items.
Similarly, items are dropped for a variety of reasons. Microwave ovens,
for example, are as popular as they were in the 1980s but due to decreasing
prices and increasing reliability the amount spent on them has decreased.
Discussion questions: How accurate a reflection is the American Consumer
Price Index in tracking and measuring the products that consumers buy
and the prices they pay for them? Have the products and prices tracked
by the CPI kept up with changes in consumer behavior?
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I have serious doubts that the products and prices tracked by the CPI are keeping up with changes in consumer behavior. You can no longer rely on tracking what’s in the shopping basket as reliable and complete. We are now locked in to a new economy. The example of how music is purchased is a prime example. The same could be said for any number of other types of purchases, as well.
It is inherently more accurate to measure what people do than to ask them what they do. I’m not an expert on these national economic indexes, but with the wide availability of scan data, including from panels, I wonder at the need for creating evolving baskets when a more or less continuous image of the basket should be available, without decisions as to now this needs to be included, and now that.
The CPI is not an accurate representation of what consumers are truly spending their money on, since it doesn’t take into account many items like gasoline, gambling, and other non-recorded items. This index instead determines whether we are confronting a situation where habits are the same or different, with the measured items, and where pricing is going (i.e. inflation) vis-a-vis these goods and services.
I consider the CPI more of an overall indicator as to what is going on in terms of inflation. I would never suggest a brand or retailer use the CPI to figure out what consumers want.
The only thing that is static in retail is change. And customers can change their buying habits faster than Jeff Gordon’s pit crew changes tires. The CPI is for economists and interest rate makers. The rest of us have to rely on good old fashioned behavioral observations to make operational and marketing decisions.
Not sure how British purchase habits even remotely relate to the American CPI, but let’s give it a shot. On the British list of tracked products, treacle. Can’t find that on the U.S. list. On the U.S. list, toothpaste. Not on the Brit list. Pudding appears on both lists, but they aren’t the same thing. Brits purchase kidneys in food stores at low prices while Yanks buy them illegally on the black market for thousands of dollars. Gruel has not been on the American list for decades. Same with sheep’s heads. Foie Gras , i.e. force-feeding geese until their livers are ready to burst and then processing those livers into a tasty paste, is included on the U.K. CPI, but is illegal here in the colonies. Coffee here, tea there.
Nope, I can’t make a connection. Your turn.
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I have serious doubts that the products and prices tracked by the CPI are keeping up with changes in consumer behavior. You can no longer rely on tracking what’s in the shopping basket as reliable and complete. We are now locked in to a new economy. The example of how music is purchased is a prime example. The same could be said for any number of other types of purchases, as well.
It is inherently more accurate to measure what people do than to ask them what they do. I’m not an expert on these national economic indexes, but with the wide availability of scan data, including from panels, I wonder at the need for creating evolving baskets when a more or less continuous image of the basket should be available, without decisions as to now this needs to be included, and now that.
The CPI is not an accurate representation of what consumers are truly spending their money on, since it doesn’t take into account many items like gasoline, gambling, and other non-recorded items. This index instead determines whether we are confronting a situation where habits are the same or different, with the measured items, and where pricing is going (i.e. inflation) vis-a-vis these goods and services.
I consider the CPI more of an overall indicator as to what is going on in terms of inflation. I would never suggest a brand or retailer use the CPI to figure out what consumers want.
The only thing that is static in retail is change. And customers can change their buying habits faster than Jeff Gordon’s pit crew changes tires. The CPI is for economists and interest rate makers. The rest of us have to rely on good old fashioned behavioral observations to make operational and marketing decisions.
Not sure how British purchase habits even remotely relate to the American CPI, but let’s give it a shot. On the British list of tracked products, treacle. Can’t find that on the U.S. list. On the U.S. list, toothpaste. Not on the Brit list. Pudding appears on both lists, but they aren’t the same thing. Brits purchase kidneys in food stores at low prices while Yanks buy them illegally on the black market for thousands of dollars. Gruel has not been on the American list for decades. Same with sheep’s heads. Foie Gras , i.e. force-feeding geese until their livers are ready to burst and then processing those livers into a tasty paste, is included on the U.K. CPI, but is illegal here in the colonies. Coffee here, tea there.
Nope, I can’t make a connection. Your turn.