Monday, 6 February 2012

Yorkie, officially for girls

Towards the end of last year I noticed that picking out my customary Yorkie bar from the vending machine was easier than normal and its consumption was far less satisfying. I also spotted that they were no longer using the catch phrase "Its not for girls". More recently I was pleased to pick up some 'old stock' Yorkies approaching their use-by-date from my local Coop and I was able to do a direct comparison.

So Nestle have decreased the mass of the Yorkie bar by a staggering 15% and are selling it at the same price. I can only conclude that the new Yorkie "is for girls", perhaps those that are on a diet for the new year. Sadly I expect this change to be permanent and I will have to look elsewhere for a chunky chocolate fix.

This did get me thinking about the nature of 'inflation'. The price of the product has not changed, however the price/g of the chocolate has gone up. For the chocolate consumer this represents an increase in the cost of living but I don't believe this will be recognised via the 'basket of goods' by which 'inflation' is measured. However there is a fundamental difference between a price increase caused by, say, a poor cocoa harvest reducing supply to the market and a price increase brought about by a devaluation in the currency caused by an increased supply of money. Which is true 'inflation'?

On another thing I am more certain, an increase in base money from the Bank of England is not directly inflationary. Since it tends to sit in commercial bank reserve accounts and does not flow outwards into the wider economy. The amount of money in active circulation is increased by commercial banks creating new loans. This is something that they are not currently doing much of, since the pool of credit worthy borrowers is shrinking (as unemployment increases and businesses contract) and their security of choice, real-estate, is falling in value.

1 comment:

  1. Great point about money sitting on banks' balance sheets rather than reaching the real economy. Huge difference there.
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