Case Study: Case of Price Differences

It would seem like printing prices should be different in different parts of the country. After all, some places have high costs where others have lower ones. Well, I agree that prices are different among different shops, but I’ve seen it not so much as a regional variation as a local one. Prices, statistically speaking, are equally screwed up throughout the country and vary as much, if not more, within a region as they do between regions. But I really didn’t expect to find surprises when I tried to find facts on how much costs really did vary regionally. Let me explain.How big a difference is there between costs in regions? I thought that should be easy to determine. The term “cost of living” pops into one’s mind first. According to a recent Kiplinger study, Fort Smith, AR, is the city with the lowest cost of living, with an index of 85.2. New York City/Northern New Jersey/Long Island was the highest, with an index of 400.

Yet, when we take a closer look, the top three super-high cost areas (New York metro with 19.1 million people, Honolulu with about one million, and San Jose with about two million), represent about 7% or 22 million of us, while the great bulk of us (93%, or 286 million) have a Cost of Living Index which ranges from 85 to 140.

Index Basics

So there is a cost variance, using this study as a basis, but using it for comparing prices has significant drawbacks. Cost of living essentially means the amount a consumer needs to spend (in dollars) to reach a certain standard of living. It doesn’t indicate that prices in one area are higher or lower (surprise number one), although we might think that it would. Basically, it’s like surveying the minimum amount required to live in an area. Experts say it’s really the change in the index that’s most accurate, not necessarily the relationship between areas.

So, what about the Consumer Price Index? It measures prices, which have more bearing on our subject. However, the problem in relating this index to printing prices is that the Consumer Price Index covers a market basket of consumer goods and services, which don’t necessarily apply to a small manufacturer like a printer. Our expenses have less to do with the cost of groceries, for instance, than with the price of electric and rent. So, although this is an indication, it’s not spot on.

So we turn to the Producer Price Index (PPI), one of the oldest continuous systems of statistical data published by the Bureau of Labor Statistics (BLS), as well as one of the oldest economic series compiled by the federal government. Origins of the index date back to 1891.

The Producers

The PPI measures the average change over time in the selling prices received by domestic producers for their output. OK, now we’re talking. That’s us—domestic producers—and that’s dead on what we want to measure (prices). Only problem with this scenario is that the BLS does not track the PPI by regions, so we can’t compare the Northeast with the West, or whatever (as of April 2011, anyway). And that is super surprise number two. The PPI, like many of the BLS indexes, is a single national index focused on month-to-month change.

Now, according to my sources in BLS, they used to regionalize the PPI. But that service fell to the budget ax years ago and it’s not likely to be resurrected soon, although they get a lot of requests for it.

Hmm. Now how can we measure relative overall prices between areas? According to one researcher in the BLS’s Price and Index Number Research area, the best comparison of costs and pricing available would be the relative cost of wages between regions. For wages are both costs (to the business) as well as prices (to the worker).

Now, there is a variance in wages between larger and smaller markets. According to the BLS, in a release dated July 2010, that overall wage ranged from 120% in the in the San Francisco area to a low of 79% in the Brownsville, TX, area. So, focused on wages, a $10 an hour worker in the low cost (79%) area would normally equate to a $15 an hour worker in the high cost (120%) area.