Transcript

Amada Agati:  

Ready or not, the holidays are nearly here! As we deck the halls and dust off our ugly sweaters, we can’t forget to make our lists and check ‘em twice, because let’s be honest, the holidays are expensive! While we all can probably agree it’s better to give than to receive, you may be wondering what all that giving is going to cost you this year. Ho-ho-hold on to your Santa hats because ‘tis the season for the PNC Christmas Price Index edition of Adding Alpha!

Annual traditions are a mainstay of celebrating the holidays, and we keep the spirit alive with traditions at PNC too. Now in its 41st year, the PNC Christmas Price Index measures the change in prices consumers can expect to pay for True Love’s gifts from the classic holiday carol, “The Twelve Days of Christmas.”

Unlike the widely referenced Consumer Price Index, compiled by the Bureau of Labor Statistics, the PNC CPI measures inflation through the lens of holiday gift giving. Every year, our Investment Office tracks down prices from bird hatcheries, nursery suppliers, dance and theatre troupes and jewelry stores to calculate and track the changing price of Christmas.

This year, the total for True Love’s gifts wrap up at a tree-topping $49,263…or a cumulative $209,272 if you really want to make an impression by buying all 364 gifts in the repeated verses of the song. Your true love better like birds!

On a percentage basis, the index is up about 5.4% — that’s double last year’s increase and above the BLS headline CPI inflation level of 2.6%.

Despite the bird-heavy gift list, it’s the services component, comprised of skilled labor in the form of performers, who are demanding the largest increase and driving the PNC CPI higher. This trend mirrors what’s happening in the broader economy, as strong labor markets have been keeping upward pressure on inflation, while the goods component has come down quite a bit since the pandemic.

Good news though: there were no price increases this year for five of the gifts in the Index, including the Two Turtle Doves, Four Calling Birds, Five Gold Rings, Seven Swans-A-Swimming, and Eight Maids-A-Milking.

And although Partridge prices were also unchanged, Pear Tree prices jumped again this year, this time by 17.1%. We think of the Pear Tree as a proxy for housing costs, which continue to increase despite average mortgage rates edging lower from their recent highs alongside the shift in Federal Reserve monetary policy.

Like the BLS CPI, we also calculate a “core” version of the PNC CPI. However, instead of excluding food and energy prices, the most volatile component that we exclude from our core CPI is — you guessed it — swans! But because swan prices were flat year over year, the PNC core CPI rings in higher at 7.5%.

If you’d prefer to fill your sleigh online, the price of buying True Love’s gifts over the internet increased less than for those who brave the cold winter night to shop in stores, but the total remains higher at $54,074. Just blame the Clause and effect of elevated shipping costs still lingering from the pandemic.

No matter what’s on your list this year, consumer behavior remains the drumbeat for the U.S. economy. With 70% of U.S. GDP tied to consumption in some way, consumer health is a critical driver for markets and the economy. 

With the Fed’s recognition that inflation is finally coming down off the rooftop and its shift in policy stance, it will be interesting to see where the Christmas Price Index shakes out next year. Will we get the gift of lower inflation, or will still-elevated inflation be the proverbial lump of coal?

Happy Holidays!!