Inflation went up like grandma to the pearly gates
Even though she had not protected copyrights, and I would not like to infringe them, let me first emphasize that the title of the text is a phrase that came from my grandmother. Although it is a bit strange, there is an explanation for everything. For the Day of the dead (Serb. Zadušnice), the grandmother, as usual, prepared a basket full of food and drinks to take to the cemetery. At the cemetery, in addition to what we came for – to pay tribute to the dead, social issues are raised, as at any family gathering; grandma moderates the debate from world politics to the work of the local public company that maintains the cemetery, and she is dissatisfied with everything, even the maintenance of the cemetery. But the only thing we can’t talk about is domestic politics because my grandmother has been so disappointed for the last 30 years that she might become violent, so she shoots you with something. She says that she had enough of everything and that she can no longer listen to those stories. She is interested in what will happen to the economy, in our country, and in the world because the prices are rising “like crazy” on the market and in the store and she said that inflation hit her worse than death.
BUT, THE ONLY THING WE CAN’T TALK ABOUT IS DOMESTIC POLITICS BECAUSE GRANDMA IS SO DISAPPOINTED IN THE LAST 30 YEARS THAT SHE CAN BE VIOLENT, SO SHE SHOOTS YOU WITH SOMETHING.
After laughing at my grandmother’s wit, I catch the opportunity to speak on inflation; clarify to the grandmother some things about price movements and be useful for her to better understand what is happening. I have told her that she is right, and that inflation is not negligible, that it was 8.2% in January, and that it is accelerating. In order to understand me better, I explain to her that in fact, for such a representative consumer basket of goods and services it was more expensive January 2022 than a year earlier and that everything she used to pay 31,000 dinars in January 2021 now she pays 33,542 dinars. On purpose, I give her an example with 31,000 dinars because that was the average pension in Serbia in January 2022; and it is equal to the grandmother’s pension, thus being of use to her when she makes a household budget because everyone loves their grandmother the most.
However, I see that she is not satisfied with the explanation because the term “a representative consumer” does not pass easily to her, but she is also suspicious of the prices observed by the Statistical Office of the Republic of Serbia, are they well documented from month to month. I immediately answer her that I think prices are noted well because as a researcher I know that inflation is calculated on a sample of over 30 thousand goods and outlets. But I do not have a firm answer to the second question of whether the basket is representative, because for everyone the basket is good and the service that is bought is the most representative and best reflects his needs for life. The representative basket used by the Statistical Office of the Republic of Serbia looks at 12 groups of goods and services, which are later broken down into subgroups, and then into specific goods and services such as meat, electricity, wine, tobacco, medicines, repairs of shoes, etc. Based on monitoring the prices of specific goods and services and their share in the consumer basket, the inflation rate is calculated. I see, she still refuses the information that the prices increased only by eight percent.
INFLATION THAT IS AFFECTING GRANDMOTHER, A CHARACTERISTIC PENSIONER WITH AN AVERAGE PENSION OF 31,000 DINARS, IN JANUARY THIS YEAR, WAS 10 PERCENT.
In order to gain my grandmother’s trust, and convinced her to believe in the economic profession, which she does not trust much, I tell her that it is not a problem for me to calculate inflation for her and her consumer basket. I will do that by getting from her the information about what spends on her pension of around 31,000 dinars, and then I will cross that data with publicly available data on the price index of each good or service, and she will get a personal calculation of inflation – to know what she is up to. She agrees and says that she mainly spends her pension on food, about 60 percent, and on the payment of duties, about 20 percent, and gives 5 to 10 percent per month for medicines. Logically, she does not spend on education in those years, while there is no money for restaurants and hotels. I will examine it for numerous other goods and services so that I can enter everything in the table when we return from the cemetery and do the calculation.
Inflation, which affects the grandmother, a typical pensioner with an average pension of 31,000 dinars, amounted to 10% in January this year. As the grandmother is only interested in absolute amounts, she concluded as if “from a cannon” that for what she paid 31,000 dinars in January 2021, she now has to pay 34,100 dinars. That’s right, I shouted with happiness because I see that I am slowly gaining her trust in the economic profession. I tell her that this is an indicator of her standard of living and that she now knows how much her pension needs to increase in order for her standard to remain at the level of the previous year. We also agreed that there is a difference compared to the January 8.2% inflation rate in the case of the representative consumer basket for which the Statistical Office of the Republic of Serbia calculates the growth of consumer prices, but that the difference of two percentage points is not something that indicates that the whole concept inflation measurements poor; that the consumer price index is an indicator for an imaginary individual in society; and not to be trusted. However, this calculation of the consumer price index is an international practice.
When I calculated the overall inflation rate for my grandmother’s specific case, I wanted to explain to her in more detail what makes her the thinnest in terms of money. The origin of the inflation that a pensioner faces with a monthly pension of 31,000 dinars is the rise in food prices. Almost all food prices doubled in January 2022 compared to a year earlier. With the increase in prices, oil, vegetables, meat, and bread and cereals are leading – all double-digit – the prices of these products have increased in the past 12 months from 12.3 to 26.4 percent.
OIL, VEGETABLES, MEAT, AND BREAD AND CEREALS – ALL DOUBLE-DIGITS.
To be clearer, I emphasize to my grandmother that when a good or service becomes more expensive, it does not necessarily mean that it significantly contributes to inflation, because it is also important to what its share in the consumer basket is. If the share is small, ie. if the grandmother spends a little, it does not contribute much to inflation, and back – if that food is something she buys every day, then its price increase has a significant impact on the inflation rate. Grandma understood this, so she asked what contributed to her food inflation the most. The answer is easy to see from the data – meat and vegetables. She buys both in significant quantities, and meat has risen in price by about 16 percent, and vegetables by about 26 percent, and these two products explain more than a fifth of my grandmother’s inflation. In addition to food, the increase in electricity and coal prices also contributes to grandmother’s inflation, but that is significantly less than the impact of rising food prices on inflation. I emphasize to my grandmother that other goods such as fuel are significantly more expensive, but that it does not affect her because she did not renew her driver’s license for a long time, and even if she did, she would react by driving less because it is luxury for her income level.
This is how the short analysis of inflation for the grandmother, the average pensioner with an income of 31,000 dinars, ended, which is currently attacked by specific inflation of 10 percent. What worries me is the next appearance before my grandmother and the topic of inflation; because from the moment of the Day of the dead, which was four weeks ago, to the moment you read this text, the world has changed significantly and complicated, so everything is uncertain and difficult to predict, except that inflation will hit Grandma even harder in the coming months.
To my grandmother’s sorrow, while I am writing the last lines, confirmation has arrived that inflation will push her even harder. The Statistical Office of the Republic of Serbia published data that inflation accelerated in February and that consumer prices were 8.8 percent higher than a year earlier. To make matters worse for the grandmother, the important things from her basket became even more expensive; in a year, vegetables went up by almost a third, and coffee and tea by a fifth. In the end, I think about my problems, when the Government does not extend the decision to freeze the prices of basic foodstuffs – sugar, flour, oil, meat, and milk, my grandmother’s inflation will increase, and then with economic explanations of the phenomenon and origin of inflation, I will not dare to go in front of my grandmother.
Author: Nenad Jevtovic, BS in Economics (text published in NIN on March 19th, 2022)
Photo by: Oliver Bunic