Published November 27, 2012
| Wall St. Cheat Sheet
Buying all the items in the classic holiday song “The 12 Days of Christmas” will set consumers back more than ever this year. The development is hardly surprising given the current financial environment, but it serves as a quirky reminder that loose monetary policies by central banks have consequences.
According to PNC Wealth Management, buying all 364 gift items mentioned in the song will cost a record breaking $107,300.24, representing a 6.1 percent jump from last year’s $101,119.84 total. The firm’s Christmas Price Index, which shows the current cost for one set of each of the gifts given in the song, increased 4.8 percent. In comparison, the index gained 3.5 percent and 9.2 percent in 2011 and 2010, respectively.
“The rise in the PNC CPI index is larger than expected considering the modest economic growth we’ve had over the past 12 months,” said Jim Dunigan, managing executive of investments for PNC Wealth Management, in a press release. However, he tried to remain jolly by adding, “Despite some weak spots in the economy, consumer balance sheets are improving along with consumer confidence, which means this may still be a spirited holiday season.”
The biggest mover in the Christmas Price Index was the “Six Geese-a-Laying.” The cost of the gift surged 29.6 percent to $210, compared to $162 last year. The cost was obtained by the National Aviary in Pittsburgh. The second largest gainer was “Five Gold Rings,” followed by a “Pear Tree,” with price increases of 16.3 percent and 11.8 percent, respectively.
PNC says its index is similar to the Consumer Price Index, which is produced by the U.S. Bureau of Labor Statistics and measures price changes in goods and services, but the Christmas Price Index represents a better picture of inflation for consumers. PNC’s 4.8 percent gain in prices easily outpaces the government’s price index, which stands at only 2.2 percent for the past 12 months through September.
PNC even has a core index that removes volatile swan pricing that is still higher than the government’s core index that removes food and energy prices. Consumers doing their own shopping will likely agree that a 2.2 percent inflation rate from the BLS belongs in fantasy land.
While one of the worst droughts on record can be used to explain away a jump in pear tree prices, weather can not be used to explain the strong increase in gold prices. The precious metal has gained more than 10 percent this year, as central banks continue to debase fiat currencies through quantitative easing programs. In the U.S. alone, the Federal Reserve has launched QE1, QE2, Operation Twist and QE-infinity, which contains no set time limit. The Fed has expanded its balance sheet from around $900 billion in 2008 to nearly $3 trillion today. Quantitative Easing by the four major central banks over the past four years totals an astounding $6 trillion, according to IceCap Asset Management and Goldman Sachs Global Economics.
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Disclosure: Long EXK, AG, HL, PHYS