Bananaflation

The latest consumer price index figures show prices up 4 percent over the last year and 1.6 percent in the last quarter. PM, John Howard, acknowledges this is not good:

“I have to acknowledge that the inflation figure a couple of days a go was bad, it was bigger than I expected,”

Fair enough. But then he goes on to blame it on the price of bananas:

“And it was caused by this extra increase in food prices, in turn caused by a 250 per cent increase in the price of bananas, which in turn was caused by Cyclone Larry,” he said.

“Now that’s a one off and it will go through the system.”

Now, I’m surprised at the impact of bananas on inflation. I would think it minimal in reality as people would respond to the price rises by substituting other fruits for bananas. At $11.99 a kilo or whatever they are, people just don’t buy bananas in anything like their normal quantities. It is hardly an increase in the cost of living, more a diminution in the normal consumption choices available. I thought to myself yesterday that the impact of bananas on the CPI is more a methodological flaw in measuring price changes rather than a true representation of inflation. The Australian Bureau of Statistics acknowledges the methodology issues in its CPI release, saying they do not make any allowance for short term substitution effects, and the index is calculated from a fixed basket of goods and services.

Funny though, how governments claim all the credit for good economic indicators, but disclaim all responsibility for bad ones, blaming them on international factors, droughts, floods, pestilence, wars and bananas.

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