Christmas dinner evaluation
Posted: November 30th, 2016, 1:35 pm
According to Good Housekeeping's Christmas dinner index , suggests that the 11 ingredients necessary for Christmas dinner are now 10.8% cheaper than they were in 2009. http://www.bbc.co.uk/news/business-38145439
Surely if the economy were working as it should one would expect things to be cheaper as time passes?
Inflation-adjusting prices from one year to the next or over any longer period of time presupposes 1) the constituents of the index remain unchanged during the period in question - (long term) they do not; 2) all factors remaining constant - unlikely ; and 3) the manufacturing efficiencies are not improving, resulting in cost savings for the producer and lower prices for the consumer.
The latter - 3) 0 I suggest the dominant influence. Technology, improvements in production efficiency, finance, economy of scale, etc all contribute to the output cost. Since profit margins are also geared to cost, it doesn't follow that higher prices mean high profits. Since higher prices stimulate competitors on price alone, it is often easier to maintain and/or capture more share of the market by reducing costs and charge lower prices.
Surely if the economy were working as it should one would expect things to be cheaper as time passes?
Inflation-adjusting prices from one year to the next or over any longer period of time presupposes 1) the constituents of the index remain unchanged during the period in question - (long term) they do not; 2) all factors remaining constant - unlikely ; and 3) the manufacturing efficiencies are not improving, resulting in cost savings for the producer and lower prices for the consumer.
The latter - 3) 0 I suggest the dominant influence. Technology, improvements in production efficiency, finance, economy of scale, etc all contribute to the output cost. Since profit margins are also geared to cost, it doesn't follow that higher prices mean high profits. Since higher prices stimulate competitors on price alone, it is often easier to maintain and/or capture more share of the market by reducing costs and charge lower prices.
