Wednesday, July 26, 2006

Bananas inflating

Ok readers. Which of you has been buying bananas and driving up Australia's inflation rate???? Stop it, just stop it now. You will ruin our economy.

Seriously, I don't know anyone who has bought bananas in any quantity since the cyclone ruined this year's Queenland crop. So how can the increase in the price of bananas affect the inflation rate if no-one is buying them?

3 comments:

  1. That struck me as odd too. I would have thought something highly substitutable such as bananas would have very limited impact on the CPI. They do not drive the cost of living up, as consumers replace them with something else. Strikes me as a flaw in the CPI sampling methodoloy.

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  2. Link gave a very good explanation for this over at Bibliobillabong and it was something I'd never know.

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  3. Ok, not a bad blog actually. I have heard many explanations since I wrote that. But my thoughts are that the price of bananas is in the basket of goods that measure inflation, not whether people actually buy them. In the bigger picture, it is not very relevant anyway. Gvt thinks because we know how expensive bananas are, that we accept the high inflation figure.

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Whenever I wish I was young again, I am sobered by memories of algebra.