How much are you hoping to spend on holiday gifts this year? Chances are, you’re looking to spend about the same as last year. A number of economic indicators are giving shoppers the impression that inflation and consumer prices are holding fairly steady.
In September, the U.S. Bureau of Labor Statistics reported that the consumer price index (CPI) dropped by .2%. It was the first decline in more than a year; the last time that happened was in April 2013. If you take out adjustments for food and energy, the core CPI didn’t budge at all: it was the first time that’s happened in four years.
The CPI measures the cost of goods and services. When the CPI doesn’t change much, it tends to signal that interest rates will stay put. This is important for taxpayers because the Tax Code provides for mandatory annual adjustments to certain tax items based on inflation – and sure enough, when the Internal Revenue Service announced the annual inflation adjustments for 2015 tax year, including tax rate schedules, tax tables and cost-of-living adjustments, rates and deductions reflected slight adjustments but didn’t vary wildly.
Of course, the numbers shoppers care most about tend to be the ones reflected in their wallets. And this year, while the BLS’ CPI took a dip, PNC Wealth Management’s CPI – the Christmas Price Index® – increased but only a bit. The CPI bumped just 1%. That’s the smallest increase in more than ten years and is a far cry from the nearly 8% increase we saw last year.
The PNC Christmas Price Index® is similar to the Consumer Price Index – which measures changes in prices of goods and services – but instead, it measures the cost of buying one set of each of the gifts given in the song “The Twelve Days of Christmas.” And it’s pretty accurate. According to Jim Dunigan, chief investment officer for PNC Wealth Management, “While there are exceptions in given years, what’s most interesting about the index’s history is that since the beginning, year over year increases have averaged 2.8 percent, which is exactly the same number as the U.S. inflation index.
(Image courtesy of PNC Bank)
The CPI indicates that if you add up the cost of giving your true love all of the gifts in the song, it would cost you $27,673. Last year, those 78 items cost $27,393.17. If, however, you really want to impress your true love by nabbing all 364 items – the number of the items as repeated throughout the song over and over (and over) – you’d have to cough up $116,273.
Those numbers may sound steep but they don’t reflect much of an increase over the 2013 holiday season. Prices have remained absolutely stable for most of the gifts: eight of the items remained unchanged.
The real increases this year were for the birds… literally. The cost of the partridge in a pear tree bumped by nearly 4%; the cost of those French hens increased 10%; and the cost of the geese-a-laying shot up an amazing 71.4%. The only other increase was a mild bump for the lords a-leaping: just 2%.
The cheapest gifts on the list are those eight maids-a-milking, ringing in at just $58 (as unskilled laborers, they work for minimum wage). In contrast, the most expensive gifts are the nine ladies dancing: they cost $7,552.84 (note to self: consider taking up dancing if this legal gig doesn’t work out).
Since 1986, Rebekah McCahan of PNC Wealth Management® has been in charge of tallying up those costs. McCahan gets most of her shopping information directly from the source: for example, the National Aviary in Pittsburgh offers up the costs for the doves and swans. A national game bird supplier assisted with the cost of the partridge, a national pet chain gave up the cost of the calling birds (you and I identify them as canaries) and a hatchery provided the cost of the hens. And the price of those exorbitant geese came from a waterfowl farm (psst: staring out of my window, I’m fairly certain that I can get you some Canadian geese at a much cheaper price).
The sources for the prices generally remain the same in order to promote consistency. They have, however, changed when necessary – along with economic trends.
The prices in the CPI reflect the cost of shopping the traditional way: actually going to jewelry stores, plant nurseries and the like. But that’s not how most of us shop anymore. This year, buying those items online would cost $42,959.07. That’s an 8% increase from 2013. Dunigan explained last year, “In general, Internet prices are higher than their non-Internet counterparts because of premium shipping costs for birds and the convenience factor of shopping online.” This, despite lower fuel costs overall.
Sales tax (or use tax, if you’re shopping online) might be payable on your Christmas gifts – but that would depend on where you live and where you shop. While 45 states impose some level of sales tax, there is dramatic variation between what goods and services are subject to tax. This is especially true when it comes to the costs of services. PNC is located in Pennsylvania where food (except for ready-to-eat), most clothing apparel, and medicines are nontaxable. But that pear tree? Taxable. Those gold rings? Taxable. Pets and most animals? Also taxable. Those milkmaids, however? Not taxable; as a farm and dairy state, most dairy-related services are exempt. Figuring the exemptions from state to state would be wildly time-consuming, so the CPI is tax neutral: interested consumers and tax geeks like me can figure those differences on our own.
PNC has figured the CPI each year since 1984. For an in-depth look at the numbers, you can find the price chart – and loads of other fun graphs – here (downloads as a pdf).
