The Toilet Roll Core Inflation Index

I was Zooming with an old friend the other day to catch up on recent events. We discussed how package sizes were getting smaller while prices were steadily rising for the sorts of foods and goods we have been buying for decades. I commented I had noted that toilet roll cores were getting steadily larger, leading me to search shop shelves for rolls with smaller cores and so more loo roll. We agreed this might make a good inflation rate complement to the Economist's Big Mac Index.

Introducing the inaugural Toilet Roll Core Inflation Index! In 2019 the roll had a core of 35mm, in 2020 it had widened to 40mm (5mm change), and in 2021 it is even bigger at 50mm (10mm change). All the brands are doing the same thing. There are no longer any 35mm cores, the standard for many decades past.

Pandemic scarcity, supply chain disruption, and wholesale inflation are leading to an accelerating inflationary trend that is getting a lot harder to ignore as 'transitory', at least for those of us doing weekly shopping.

The preference of some central bankers to exclude food and fuel from inflation policy-making because they are 'volatile' was just barely defensible, even if poor people and those on fixed incomes spend more of their budgets on food and fuel than the middle classes or wealthy elites. It is getting harder to defend. If policy makers are setting interest rates and market support operations only with an eye to bank profits and 'financial stability' (ever growing debt and bubbly asset prices), then food and fuel don't matter. Banks, equities and bonds do very well without eating, warmth, or travelling. If policy makers care about people, jobs, and the broader real retail, industrial and agricultural economy, then food and fuel matter.

Recent global natural gas price spikes are leading to further supply chain and manufacturing disruption, spurring faster inflation, and risk 'fuel poverty' for the poor and elderly as winter sets in. Central bankers might remind themselves that nearly 50 years ago a fuel supply chain shock - the 1973 OPEC embargo and subsequent oil crisis - led to a spiral of sustained and vicious inflation that was only contained with Paul Volker's harsh interest rate hikes and harsher US and global recessions. Escalating debt servicing in USD as the USD appreciated in the 1980s led to a lost decade of developing world growth, the Third World Debt Crisis, political instability, civil wars, and an intensification of the Cold War.

Reinhart and Rogoff are warning that developing world debt levels that now match the 1970 peak relative to output present only unattractive policy options to ensure continued servicing or debt reduction. Inflation, USD rate hikes, and USD appreciation relative to domestic currencies could make the debt trap worse. Inflation only reduces debt servicing loads if revenue growth outpaces inflation and debts can be rolled over at maturity, both now uncertain for EMDEs.

The Toilet Roll Core Inflation Index for 2019, 2020 and 2021 is showing a worrying not-so-transitory accelerating inflationary trend.