Skyrocketing prices?

With the Olympics acting as a bit of a distraction, it took me some time to get around to reading the CRTC report, “Navigating Convergence: Charting Canadian Communications Change and Regulatory Implications.” Many of the news accounts of  the report were typically superficial, effective for looking for sensational headlines and forcing the CRTC Chair to issue a statement to respond.

One of the stories focused on so-called “skyrocketing” prices supposedly highlighted in the report. If you check out Figure 7 in the report, you will see that the prices don’t really seem to be “skyrocketing.” The overall CPI rose 13.3% from 2002 to 2008. Telecom services rose 5.7%, less than half the rate of inflation. Prices rising 5.7% over 6 years: help me understand the adjective, please. That’s a fizzled out kind of skyrocket, isn’t it?

Now, eyeballing Figure 7, you will notice that prices have been pretty flat, with an uptick in the final year. The statistician in me asks, what happened in that year? Well, followers of the CPI would know that in 2007, Statistics Canada updated the CPI, changing the base year to 2002 and it also updated the basket of goods to match consumer purchase patterns in 2005.

So the first point is that there is a discontinuity that needs to be examined and understood. Secondly, the CPI report from Statistics Canada is measuring a basket of services that does not necessarily align with current purchases. The current basket is 5 years old. An objective of the CPI is to match the goods and services that the average household buys, and adjust in order to understand like for like price changes. But certain goods and services are very different today from what was available 5 years ago.

Think about the challenge in comparing prices on computers – the purchase price may stay at $1000, but that buys a lot more of a machine today than it did in 2002. Today’s households buy a very different mix of telephone services than what they bought 6 years ago. That changing mix means prices for legacy services may have changed for all the right reasons as tastes and trends transition.

Cable and satellite rose 30% since 2002; double the CPI. Of course, let’s also be sure to take a look at what has happened to TV over that period. More channels, more digital, affordable big screen TVs (meaning more set top boxes per household), more HD, pay-per-view, on-demand, etc.

In other words, people are buying more TV services, perhaps because they want to and because they think it is worth the price, especially compared to other entertainment choices in a tough economy.

It is easy to look at numbers; it is a lot tougher to understand them, draw conclusions and develop policy based on the data.

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