Sunday, September 7, 2008

Autumn in the air, and in the pocket

Arnhem Autumn Coming 3The winds rose, the clouds lowered, and the cold rain arrived this weekend. No doubt: there's autumn in the air. Signs are everywhere, contrasting yellow in the green trees, puddles of leaves in the gutter.

The economic news seems to be drifting towards winter as well. True, oil prices are down and the dollar is up, but markets are still sagging and friends sound worried. Even setting gas and food prices aside, the cost of running a household continues to rise faster than incomes.

The Consumer Price Index (CPI) is the official measure of what it costs to run a household. Currently, prices measured by these indexes are rising at around 6% annually in the US, and 3.2% annually in the Netherlands.

The Labor Department's CPI calculation is based on the cost of a weighted basket of goods that reflect how typical US consumers spend. Deviations from their spending model will change the cost inflation that I feel, and I've always thought that the US underestimates the pain.

Currently, the US CPI is calculated based on:Arnhem Autumn Coming 2

  • Food and beverage (15%: 2/3 spent at home, 1/3 spent eating out; alcohol and tobacco is 2%)
  • Housing (30% shelter, 5% utilities, 5% for furnishings)
  • Apparel (4%)
  • Transportation (20%)
  • Medical care (6%)
  • Recreation (5%)
  • Education and Communication (6%)
  • Other (3%)

How much do you think that the "typical Dutch" spending model might differ from the "typical US" consumer?

I looked it up: Dutch prices are tracked by Statistics Netherlands (CBS) and their calculation of CPI is structured as follows:

  • Food and beverage (18%: 80% spent at home, 20% spent Arnhem Autumn Coming 6eating out, alcohol and tobacco are 3%)
  • Housing (22% for shelter and utilities, 7% for furnishings)
  • Apparel (6%)
  • Transportation (12%)
  • Medical care (0.6%)
  • Recreation (11%)
  • Education and Communication (4%)
  • Other (10%)

It's an interesting contrast. I'm surprised that housing is a lower proportion of household spending in the Netherlands, but not at all surprised that transportation is lower. Recreation is double (those summer holidays add up?), and medical seems stunningly low (the Dutch are fabulously healthy, or unburdened by co-pays?).

Still, the bottom-line inflation outweighs the gains made through income or investment no matter where you live: in this season, autumn comes to all towns and to all men.

1 comment:

Textual Healer said...

My experience is that housing costs in the NL are significantly lower than in the UK (and I think they fall again if you look to Germany or France). My theory is the large social housing sector here dampens the house price effect. Basically the US, the UK and Ireland are speculative housing markets and this contributes a great deal to economic instability (highs and lows). I'm suprised about the low rating given to alcohol and fags. If it were an Irish or English rating it would surely be at least 10%.
But a lot of it is about life cycles, young singles, young and middle aged marrieds and older singles have very different distribution of costs. Things like furniture expenditure bunch up with and are linked to home aquisition.