Personal and Impersonal
The lead story in the Money and Investing section of the Wall Street Journal had an ominous headline that immediately caught my attention.
The lead story in the Money and Investing section of the Wall Street Journal had an ominous headline that immediately caught my attention. It didn’t rise to the level of war and peace issues or life and death issues but for me it mattered tremendously. The headline stated “Chocolate Prices Soar in Dark Turn” and the article focused on two key factors responsible for the substantial increase in chocolate/cocoa prices. The first reason for the price increase is weather related and caused by dry weather reducing the harvest. The second is changing taste with more consumers developing a taste for dark chocolate in place of milk chocolate. So, in summary the price increase is related to both supply and demand factors; over time the supply issues will likely improve while the increased demand could continue (my prediction) or moderate.
Under full disclosure, I have been a long time chocolate fan and my preference has always been for dark chocolate, typically chocolate that contains 70% or slightly more cocoa solids. Milk chocolate does remind me of my childhood. The taste is milder and creamier and if there are nuts or crisps included, those flavors are more prominent. But I prefer good taste now to reminiscing; I do buy milk chocolate now and then but never get the satisfaction that a good piece of dark chocolate provides.
Consumer price index/cost of living increases are often difficult concepts for college students (and others) to relate to. If what triggered the increase has no direct tie to them or their families, the concept seems separate from their reality and not particularly meaningful. My response in class has been to assign students to develop their own consumer price index. Students put together their own market basket based on their own regular expenditures and track cost increases for that market basket. They also note whether increases in costs trigger substitutions of one product for another. For example, the increase in chocolate prices could trigger substituting milk chocolate for dark chocolate since the price increases are more moderate for milk chocolate, or could trigger substituting vanilla or butterscotch for chocolate. For some, the level of satisfaction wouldn’t change with this substitution; for others, like me, the thought of these substitutions is depressing.
An individual’s consumer price index is an effective educational tool for increasing comprehension of a price index. The next challenge is to demonstrate that increases in the national or regional CPI which don’t directly impact you are still extremely important. Often, if it doesn’t touch you directly, it doesn’t seem to matter. However, increases in health care costs now may not have an immediate or short term impact your cost of living. You employer may cover these increases or your health care plan may have short term fixed monthly payments. Increases in gas prices, may not short term affect a mass transit rider. Even if these increases aren’t personal for you, it pays to be fully informed and plan for the future impact.
It is likely that I will adjust to the changing chocolate prices by increasing my expenditures for chocolate. It is also clear to me that we should be increasing economic literacy at all levels.
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