Thursday, March 29, 2012

Episode 7: The Rise of Inflation

Inflation.  It’s a scary word, one that brings with it thoughts of financial hardship, unemployment, and recession.  The idea that the value of fiat (paper) currency is relative, and that external factors affects its purchasing power, can be a troubling thought.  While I might spend time outside my room contemplating the financial future of our country, however, there’s little room for concepts like inflation inside my closet full of action figures, video games and pop-culture nostalgia.  Or is there? 

A few weeks ago, Target was again blowing out Star Wars toys on clearance.  This time, the prices were the lowest I‘d seen for a modern day action figure ($2.36).  As you can tell from previous posts, I relish the opportunity to snag items on clearance.  The spirit of the yard sale is all about the hunt, so it’s no surprise I look for other opportunities to find good deals.  It was an easy decision to buy up what they had, but it got me thinking about just how good of deal it really was.  Would I ever find toys cheaper?   The answer, it turns out, has to do with inflation.

The toys I bought, Star Wars: The Clone Wars action figures, were released by Hasbro in February 2011 with an initial MSRP (Manufacturer's Suggested Retail Price) of $7.99 USD.  (Here’s the press release with their description).  Although the final clearance price of $2.36 represents a 70% discount, I found several clearance stickers underneath that suggest a steady level of decline.  Because clearance stickers have no noticeable date indicators (at least without intimate knowledge of Target SKUs), I can only estimate the dates for the price drops and assume the toys were priced at MSRP through the 2011 holiday season:

Shortly after the New Year, the toy’s price was cut 40% ($4.96).  Successive price drops to $3.94, $3.47 and finally $2.36 means the price decreased roughly 10% every 2 ½ -3 weeks. Although interesting information, the question remains: what does this have to do with inflation?
I decided to compare these numbers with pricing for an original Star Wars action figure, one produced in 1983 by Kenner toys.  I choose a Star Wars: Return of the Jedi Rancor Keeper (No. 71350) from my collection because it has a clearance tag along with the original price sticker.  Sears priced the toy at $2.99, which works out to $6.66 adjusted for inflation (see here for a cool CPI calculator).  It was then reduced to $1.49, or $3.32 in today’s dollars.  Although the toy was not discounted multiple times before purchase, the data we do have suggests a similarity in the way both toys were discounted.

Star Wars: The Clone Wars Mace Windu (2011)
Discounted Price
Percent of MSRP

Star Wars: Return of the Jedi Rancor Keeper (1983)
Discounted Price*
Percent of MSRP
(*adjusted for Inflation)

Separated by 28 years, an annual inflation rate of 2.90% and higher petroleum costs*(the action figures themselves are made of plastic, which comes from oil), the difference in how much both toys were discounted is only one half of one percent (0.54%).

What does that mean?  For starters, the data suggests toys are discounted today the same way they were back in the 1980s.  It’s entirely possible I will be able to walk into a Target store five years from now and buy clearance toys at 70% off.  Unfortunately, the data also suggests the toy will be more expensive (or rather, my dollar will be worth less).  Both toys are the same size, made from the same materials and packaged similarly, but the MSRP increased $1.33 (20%).  Even a 2% annual inflation rate over the next five years suggests the toy price could jump to $8.99, which translates to $2.70 at 70% off.

Barring a significant change in world monetary policy, it looks I will never again find toys this cheap.  It’s a sobering thought, but it’s comforting to know that bargain hunting will be alive and well.  I guess that means this blog could be too…

(*Some economists argue that oil prices can directly influence inflation.  Known as cost-push inflation, this can lead to an increase in the cost of consumer goods such as toys.)

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