In the vien of the Consumer Price Index (CPI) consider this...and think about what this means to us here in Argentina...
The Basics: It hurts to be rich
You think you’ve got it bad?
Inflation on caviar, imported watches and other luxury goods far outstrips price increases for beer and Hamburger Helper.
By Scott Burns
So, you think things are tough for middle-income workers and the poor?Well, open your heart. Consider the plight of the affluent.Like Sisyphus, who was condemned to pushing a rock up a hill forever, the affluent are doomed to chasing high-priced luxury objects that will be beyond their income all of their lives. This grim reality was confirmed, once again, by the CLEW index, the Cost of Living Extremely Well index, that Forbes magazine has tracked since 1976.
The Oct. 10, 2005 issue tells us that while the Consumer Price Index rose 3.6% from 2004 to 2005, the CLEW index rose 4%. Worse, the price of Dom Perignon had soared a monstrous 8%.In fact, this has been going on for a long time. One of my first newspaper columns, written as a freelancer for The Boston Globe in 1975, was titled "The La Dolce Vita Index." The column showed that the horrors of the Consumer Price Index (up 7% in 1975) were minor. The price of the really good stuff was rising even faster. Wall Street analyst Ray DeVoe created a similar index (the Cost of Living It Up) in the same year. One of the high-quality champagne makers created a bubbly index a few years later. Affluence is expensiveAll showed the same thing. Regardless of the precise contents of the index, the cost of luxury goods was rising faster than the cost of ordinary stuff. Indeed, since 1976 the CPI has risen 344%, but the CLEW index has risen nearly twice as much, 680%. That's a big difference.
It's a good bet that whatever the object of your luxury dreams, its price is rising faster than the price of Rolling Rock beer. My personal totem object is a watch. Not just any watch. This one is made by Patek Philippe, arguably the world's best watchmaker. It isn't one of their fancy models. Those routinely carry price tags you might see on a small house in Aspen.No, my totem object is the classic Calatrava 3520D J the one with the ultra-thin gold case and alligator strap. It has a crisp, austere face with Roman numerals. So simple it has no second hand. And you actually have to wind it, if you can imagine that.Its price increased by 9% over the last year, so it now costs $17,150. So the watch I have coveted (but never purchased) now costs $17,050 more than I could bring myself to pay for a watch. That's up from just $15,735 more than I could bring myself to pay for a watch in 2004.
Why rich toys rise faster...
Basically, the best stuff is rising out of reach even faster than everyday stuff -- you know, things like food, gasoline and health care.This raises a thorny question. Why is this happening?The answer is disheartening and encouraging at the same time.While basic consumer demand can be satisfied simply because we can only drink so much milk and chew so much granola, luxury goods are always in short supply. Luxury is pure demand/pull. The moment the demand for one level of luxury is sated, a higher level is created. The empty-glass brigade doesn't want to believe it, but the number of affluent people -- and their supply of money -- continue to outpace everything else. This includes the production of luxury goods. The higher you climb on the affluence/luxury ladder, the more likely the shortage of coveted objects.
A sign the economy’s good...
That's the way it is. Patek, I am told, can make only 25,000 watches a year. That's not very many watches for a world with 6.5 billion people, virtually all of whom would rather be rich and each of whom probably obsesses over a personal totem object like my unpurchased Patek. Talk about dogs chasing their tails.So what's encouraging?Simply this. As long as luxury goods are inflating faster than the regular stuff, the economy is cooking. There is a good chance that just about everyone is doing OK. When luxury goods go on sale, everyone is in trouble.
QUESTION:What does this mean to US, living here in Argentina? What personal significance can you take away from this? Can you relate elasticity to any of this?
This is one of my favorite current topics related to the inflation we are experiencing in Buenos Aires...I have lots to say on this...but I want to see what you think first.
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2 comments:
It is because those luxury goods are inelastic...branding, comprising a small percentage of our income that in the grand scheme of things, many of the things we pay for in Argentina experience a higher rate of inflation.
I always think about how much prices at Kansas have increased in the past three years and then marvel at the fact that anytime you are there after 9pm, any day of the week...you have to wait and wait in line. Just like you did three years ago when everything was half the price. They can raise the prices and we still go...ah elasticity!
i think that it is interesting t oobeserve that my father bought a Christiane Dior shirt yesterday for 89 pesos. for the same price an year ago he woulod hv bought a Dior shirt and a Cacharel tie!!
i believe that, as Ms Stephens said, the wealthier u are the more informed and the better u can deal with inflation thus investing to cover the lose of value of the money.
i think that it would be interesting to do a research on the topic to actually compare the inflation rate on two different goods. for instance, compare a Known brand (eg. Dior or Armani) with a more comom brand (eg. C&A or western) to understand the different rates of inflation at this products.
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