Nice Food Commodity Price Index Graph here. Price Index? What is that? Well, let me explain...

Source: Business Insider

This chart gives an opportunity to explain how a "Price Index" is calculated.  Price Indexes are useful in that allows you to compare the change in prices over time of similar goods/services OR completely different categories of goods/services. Price Indexes are in the form of a base 100 format.  I am going to skip the complicated math formula(s) that is(are) actually used to compile a price index and use a simple version. 

The first step is to establish a base year for comparison. This chart uses a span of time from 2002-2004.  Let's say the average price of sugar in that time was $1.00 per pound (completely made up price!). This is our base year price. To calculate the Base Year Price Index:

Current Year Price/Base Year Price X 100.  Mulitplying by 100 puts the number in base 100 form.

$1.00 (current year price) / $1.00 (base year price) X 100 = 100. 

In the base year, the current year price and the base year price are the same, so the base year Price Index will always be 100. 

Assume after 1 year the price of sugar is $1.50 per pound.  We use the same formula above and plug in the values:

$1.50 /$1.00 X 100 = 150.  150 is our Price Index for year 2.  In subsequent years we do the same thing: take the current year price of our good/service and dividing it by the base year price then X 100.

Now you are informed enough to read the chart above.  Sugar has a current price index of approx 425. So how much, in percentage terms, has the price of sugar increased? Is it 425%? The simple formula for calculating percentage change:

""Current Year Index - Base Year Index / Base Year Index X 100""

425 - 100 = 325. 325 divided by 100 = 3.25. 3.25 mulitlplied by 100 = 325%.

(Note: Yes, In this example you could have skip a math step after the first calculation. Using the base year of 100 make this easy.  However, if you were asked to calculate the percentage change between two years OTHER then the base year, this formula is necessary to work all the way through)

Quick short-cut: When you see a price index number (other than the base year one), subtract 100 from it and that will give you the percentage change in the price of the measured good/service since its base year. 

Using this information, look at the graph again...Does it not look MUCH easier to read? A quick glance and you can see how the price changes of one good compares to the price changes of the others...Don't you feel smarter now? Well, you ARE!!!

Price of a LaQuinta Hotel room THIS weekend (Super Bowl) versus NEXT weekend in Arlington, Texas...

H'bout Dem Cowboys!!

 

Prices of a LaQuinta Hotel in Arlington, Texas for THIS weekend versus NEXT weekend...Is this a case of capturing Consumer Surplus or simply Quantity Demanded is greater than Quantity Supplied? :)

Enter your birth year and see how prices have changed compared to then---Man, I am OLD!!!

Go HERE to enter your birth year to see how much several staple items cost in your birth year compared to today...Not an exact measurement but interesting...

100,000,000 JOBS!!!! Or They'll Do What???

http://www.youtube.com/watch?v=566r4_3fQqM

Need a reason to personally fret about the situation in Egypt? Check gas prices in the next few days...

WSJ: Crude Jumps 4.3% on Egypt Protests

 ""Egypt produces roughly 673,000 barrels a day, according to the Joint Oil Data Initiative, a global oil database, ranking it 21st among the world's oil producers. Still, the country is home to two of the world's key energy supply routes: the Suez canal, a transit point for oil and fuel shipments from the Persian Gulf to the Western Hemisphere, and the 200-mile-long Sumed pipeline, an alternative transit route to the canal. About one million barrels of oil per day was shipped through each route in 2009, according to the U.S. Energy Information Administration.""

""The Suez Canal is located in Egypt, and connects the Red Sea and Gulf of Suez with the Mediterranean Sea, covering 120 miles. Petroleum (both crude oil and refined products) accounted for 16 percent of Suez cargos, measured by cargo tonnage, in 2009. An estimated 1.0 million bbl/d of crude oil and refined petroleum products flowed northbound through the Suez Canal to the Mediterranean Sea in 2009, while 0.8 million bbl/d travelled southbound into the Red Sea. This represents a decline from 2008, when 1.6 million bbl/d of oil transited northbound to Europe and other developed economies.""Source HERE

Inflation in China reduces our trade deficit with them and brings jobs back to the US, right? I REALLY hope not!!

The other day in class I referred to Inflation as a thief in the night that takes money out of your pocket.  Not literally, but it does reduce the purchasing power of the money you possess, so you are in some measure being robbed.  It not only robs individuals, but whole countries. You might be surprised by which country, in my opinion, will be hurt the MOST by inflation in China---The US!

This article in the NYTIMES: Inflation in China May Curb U.S. Trade Deficit suggests that inflation in China will help reduce our trade deficit with them and that this might be a good thing. Yes, with higher prices for Chinese goods we will buy less (the Law of Demand) from them.

I. am. waiting. for. the. good. news...

This means the "stuff" we do buy from them, and will continue to buy from them, will be more expensive.

Inflation in China does not benefit us. It makes us pay more for staple items that meet our "needs" and we have less to buy things we "want". How is that a good thing?

Many of the consumer goods mentioned in the article produced in China are goods that are low tech in nature and have reached a routine manufacturing stage where it does not take a lot of skill or resources to produce them. THOSE JOBS ARE GONE FROM THE US AND WILL NOT COME BACK.  No amount of hand-wringing and politicking will change that.  Nor should we covet them.  Rather, we must invest in and prepare for the jobs of the future, not invest current resouces in trying to recover the jobs of the past.  I don't teach so you can re-gress. I teach so you can pro-gress.

Convenient chart on how much the average Egyptian spends on Food...You will hear more and more about the link between food and upheaval...

Convenient chart on how much the average Egyptian spends on Food...You will hear more and more about the link between food and upheaval...

This is a chart of roughly how much the average Egyptian spends on needs and wants.  I assume this is typical of a citizen in a relatively low income country.  Food is a very large part of their budget and when prices increase it imposes a disproportionate burden on the family budget.