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The prices of caffeine and education : Which is more jittery?

Summary:
As many students prepare to face the costs of education, they find themselves wondering what, if any, nonessential items they’ll be able to afford with the added burden of paying for their schooling. Whether hot beverages, especially coffee, are “nonessential” to students remains debatable, yet their price changes relative to price changes in education is a concept worth exploring. [embedded content] We use two data series found in FRED to construct the price ratio of caffeine to education: the Harmonized Index of Consumer Prices for Coffee, Tea, and Cocoa and the Harmonized Index of Consumer Prices for education. The graph shows this ratio over the past 13 years for the EU as a whole, the EU nations with the highest and lowest GDP in 2016—Germany and Malta—and those with the highest

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As many students prepare to face the costs of education, they find themselves wondering what, if any, nonessential items they’ll be able to afford with the added burden of paying for their schooling. Whether hot beverages, especially coffee, are “nonessential” to students remains debatable, yet their price changes relative to price changes in education is a concept worth exploring.

We use two data series found in FRED to construct the price ratio of caffeine to education: the Harmonized Index of Consumer Prices for Coffee, Tea, and Cocoa and the Harmonized Index of Consumer Prices for education. The graph shows this ratio over the past 13 years for the EU as a whole, the EU nations with the highest and lowest GDP in 2016—Germany and Malta—and those with the highest and lowest GDP per capita in 2016—Luxembourg and Bulgaria, respectively. The Harmonized Index of Consumer Prices is an inflation indicator that measures the changes in price of the goods it describes. By creating a ratio of HICP for hot drinks to HICP for education, we can examine how much the price of the former changes in comparison with price of the latter. The data are indexed using 2015 as the base year, explaining the convergence of the trend lines over time until they are all equal in 2015.

As expected, the EU indicator appears to fall near the mean of the four nations, except for the period from April 2011 to September 2012, when the ratio of HICP for hot drinks to education was highest in the EU as a whole (which had 27 countries at the time). In the two relatively better-off countries, Luxembourg and Germany, the ratio of the HICP for hot drinks to education generally remains lower than the others, meaning that the relative price of education has been increasing (as the index year is toward the end of the period) while in poorer countries the decrease in price of hot drinks is comparatively greater when compared with that of education. Note also the sudden drop for the ratio in Germany in April 2007. According to the IMF, several German states introduced new educational fees during that time period. The sudden rise in the price of education increased the HICP for education, thus causing the indicator we constructed to fall.

We can also examine the two indices separately across the five regions. While the HICP for hot drinks (above) remains similar for the EU and the four countries being investigated, the HICP for education (below) varies far more drastically, with Germany and Luxembourg seeing lower inflation for education and Malta and Bulgaria experiencing the opposite. Thus, we can attribute the differences in the ratio of HICP for hot drinks to education more to variability in education than in coffee, tea, and cocoa.

Education costs differ among nations likely because education is a good that is very specific to the country in question and its education policies. The prices of consumer goods such as coffee, tea, and cocoa are dictated by factors that span the international market, like input availability and technology. Thus, the inflation of the prices of foods and beverages is more homogeneous within the European Union, while that of education includes a higher degree of variability between nations.

How these graphs were created: Graph 1: Search for “HICP coffee EU,” select the relevant series, then click on “Add to Graph.” Under “Edit Line 1” and “Customize Data,” search for “HICP education EU” and click “Add.” In the formula box, type “a/b” and click “Apply.” Add a line and repeat the process for Germany, then Malta in Line 3, Luxembourg in Line 4, and Bulgaria in Line 5.
Graph 2: Search for “HICP coffee EU,” select the relevant series, then click on “Add to Graph.” Add a line and repeat the process for Germany, then Malta, Luxembourg, and Bulgaria. Graph 3: Follow the same process as for Graph 2, using “HICP education” as the search term.

Suggested by Maria Hyrc.

About FRED Blog
FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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