Holiday Shopping and Inflation
Posted by kristin on November 10, 2017
With the holiday season fast approaching, we wanted to take a quick look at the impact of holiday shopping on the consumer prices index:
With most of the US economy still facing weak growth and the possibility of even more contraction in the third quarter of 2017, the latest report from the Bureau of Labor Statistics confirms that holiday shopping leads to price increases.
There is a correlation between the spending by holiday shoppers and holiday prices, but not in the way commonly believed, it turns out. It’s not that holiday sales make prices go up, since in most cases, that simply isn’t true. Instead, price increases stem from what we might call the “holiday effect” on products of stores that are in the holiday season, with the largest amount of sales being the one that brings in the lowest price.
We’ll look at the correlation between holiday sales and holiday prices, and conclude with how the holiday effect might impact growth prospects at the end of the year.
Correlation Between Holiday Sales and Holiday Prices
The correlation between holiday sales and holiday prices tends to be strongest for products, or services, that most people need, but not much for those that are often chosen by impulse shoppers, or that are only purchased by those who are planning for big purchases. Let’s look at why that is.
The graph below shows the correlation between holiday sales, on the left, and holiday prices, on the right. While the correlation is not perfect, it’s strong enough to be useful in making business and personal decisions (as the graph shows). The correlation is strongest for household products, and weakest for those that are most common and most expensive, but not by much.
When one considers the correlation at a national level, the holiday effect is even stronger. Here are two charts depicting the correlation between holiday sales by state and holiday prices by state.
There is a lot of information that could be included in these charts, but for our purposes, we’ll focus on the largest difference between states with a higher share of consumer sales from those with a higher share of consumer prices. This is the difference that is most relevant to predicting what will happen