Sunday, May 04, 2008

Sunday dollars+sense: We are buying jewellery...

As petrol prices, food prices and mortgage rates have soared we have been buying more jewelery than ever before.

According to the Bureau of Statistics our inflation-adjusted spending at jewelers shops soared an extraordinary 11 per cent in the first three months of this year.

At the same time our inflation-adjusted spending at meat, fruit and bread shops dived 9 per cent, and our spending at cafes dived 4 per cent.

What on earth happened to our sense of priorities?

To perhaps most of us it makes no sense, but to an economist it's not even surprising...

And the reason why helps tells us why the Prime Minister's planned $500 million tax on so-called “alcopops” is a good idea.

There are some, like the Opposition leader Brendan Nelson and its Treasury spokesman Malcolm Turnbull, who question whether it will actually cut the sales of these sweet-flavored alcohol-laden starter drinks for kids .

Nelson says it's an “outrageous half a billion dollar tax binge”. Turnbull says education would be better than prices at turning young people away.

But an analysis by Commonwealth Securities of the detail behind the latest retail sales figures makes it clear just how important prices are.

Its economist Craig James has set side-by-side a list of those outlets increased their prices by the most over the first three months of this year and those that suffered the biggest slide in sales.

And guess what? The two lists as good as match.

Prices at meat, fruit and bread shops and cafes soared and our inflation-adjusted spending there slumped, more than at any time since the introduction of the GST.

Prices at jewelery stores dived 6 per cent – the biggest slide on record - and we bought up big.

To an economist there's not even a mystery. When the price of something falls we buy more of it (whether or not we really need more of it) and when the price soars we buy less – even if it is addictive, like food and cafe-brewed coffee.

And alcopops.

If Kevin Rudd lifts the price high enough, many many young Australians who would have taken up alcopops will see in 2020 healthy.