Skip to main content

Economy and Analysis of Economy

2008 saw a great Financial Crisis. Not to mention all the commotion, on the future of world economy. How did it happen and why wasn't it anticipated? For last few months, I have been talking on the tools to analyse, about the analytics and its power to understand the variables and the systems.

So, why did such a successful financial instrument failed to understand and predict the impending crisis. It must have been very clear from the numbers. :-) 

May be it didn't. May be it was just ignored.

Let me choose one basic variables to explain how numbers speak in the world of economics.



The above graph shows the relationship between the CPI of durables and non-durables goods. Ohh, what is CPI? It is simply a Consumer Price Index- in simple terms it denotes the price of the goods that consumers pay for and is a good indicator for the inflation. So more price means more inflation.

Starting from the early 80s, there is a close call between the price of Durable goods (electronic gadgets etc) and Non-Durable (cosmetics, foods etc) goods. The prices seem to be slowly rising. But in 1990, we see the divergence in the price. At around 1997, it seems the price on Durable goods are starting to fall very slowly, while the price on Non-Durable goods are shooting high.

Now, the analysis is not always about the rise and fall in the numbers. It is about saying why it is happening and how it can be controlled. But before that, let me pose a question. What do you want? Do you want a constant CPI or a rising CPI or a falling CPI. Which one is better?

Constant CPI would obviously denote a stagnant market, with no selling or buying at all. Inevitably, due to dynamic market , there is always going to be fluctuation. So there is a range in price over which this fluctuation happens. We are looking at a range not at the discrete particular point. But this range also increases and decreases according to civilisation's ability to purchase and sell. It like saying what to call expensive and what to call cheap.

So much talk over one graph! Yes, because, one graph is able to give so many information, because it is affected by many variables  which reveals itself on the process of analysis. 

Now the change in the CPI value of durable goods and non-durables goods can have many reasons. One such reason can be, the demand of non-durable goods might have increased. Its a basic economics. Also let me add another graph showing the production cost of the Non-durable and Durable goods.



We can see that the producer's price index for the Durable Goods have not changed since 1997 but the production cost for the Non-Durable goods have increased at a very high rate. This may have been reflected on the Consumer's Price Index. But there is a conflict between the correlation of CPI and PPI, which I better not address now.

So, on a simple note changing the production cost changes the consumer's cost. It is not enough, just stating the fact, we still don't know why the production cost suddenly rose in 1997.  Does the Great Asian Crisis on 1997 has to do anything with it. 

Think about it and let me know what you all think. I may post further articles investigating this phenomenon.

  

Comments

Post a Comment

Popular posts from this blog

Good Ad Versus Bad Ad

At InRev, for past few days we have been working on our new project. The project is about collaborative blogging, from the blogger around the world. As Bhupendra and I have been blogging for long time, with his immense experience, our team has been working to revamp the globalthoughtzand create a new blogging experience. In this site, we are planning to add a section where people can add their advertisement. We thought lets start by our own :), with already so many products on the line, it was obvious.

So there goes an effort to create a small 128 px by 128 px logo. If you are a designer, you know that designing is a very time consuming process. For hours, you just test around with colors. Remember there are 256X 256X 256combination of colors!! Its hard job selecting one.
Lets start with F-Cube: In short F-cube is a Free Economic Reporting Site. Let me exhibit some Ad made for it and its pros and cons. (Please don't click on the image. Wait till the end. Thank You)
OK, how does thi…

Selling a Comb to a Bald Person?

Here my friend, Ashay, put it very truly to me that the marketer's most challenge is to sell a comb to a bald. First, I am not trying to justify anything here. But I just couldn't help thinking how on earth am I going to sell a comb to a bald. How? Just how? I kept pondering upon it till late night. I actually had very few options with me, the first was obviously to use Google and Find? :)

But, I didn't do that. Some how I was still in confusion. Then just before going to sleep, I had an discussion with my other friend, on types of marketing on issues related to customer centric marketing. Hmm. Then some how it hit me. I went back to basic on my own philosophy, sell things that is needed. So here is a small anecdote I prepared :
Sale Person: Hello sir. How are you? Do you have a time, plzzz?
Bald Person: (Almost confused and in social causality) OK OK what is it? I don't have time.
Sale Person: Here sir, do you want to by a comb? 
Bald Person : Can't you see I am bald? …

Passion and Flying

There is an interesting aspect of flying which grasps everyone's imagination. The freedom and the control of moving around the space without any obstacle is just too much to ask for, in one man's life :). Isn't it?

As a young kid like everyone, flying was a dream. Not to mention the great stories of Leonardo Da Vinci and the Wrights brothers, who not only dreamt but also went on designing one, would inspire you to believe that some day in future it would be possible to fly like a bird. So let me tell you a short story about myself where I took myself to some limit into achieving this. :) I have been wanting to tell this for a long time but never found any occasion or reason to do so.
It was long ago when I was still in grade 3/4, should be around 1993. Space Channel was just installed in our house and I would spend time watching cartoons and other science programs. That was when I noticed gliders and parachutes. The shear simplicity of the design took me by surprise. Just…