Gary Horvath is a USPTA master pro, founder and past president of the USA Professional Platform Tennis Association, charter member of PPTR, a certified coach with USA Volleyball and a long-standing member of the Wilson Advisory Staff.
His experience as a tennis pro has covered the entire spectrum from grassroots to college tennis. In addition, Gary Horvath has conducted extensive business and economic research that has largely supported the state of Colorado's economic development efforts.
THE HONEY DEUCE INDEX
"Spend, Baby, Spend!"
By Gary Horvath
Business leaders, government officials, sports providers, tennis players, and consumers are all struggling to deal with elevated prices. The good news is that the symptom (inflation) is not pleasant. The bad news is that the remedy for the problem (rate hikes) might be even worse.
The Honey Deuce Index
Move over, Jay Powell! Sportswriter Asli Petit has educated the tennis industry about the world of inflation with the Honey Deuce Inflation Index. It is simple. Raise the prices for a precious commodity, the Honey Deuce cocktail, and watch them line up to "Spend, Baby, Spend!"
Chart I is a primer for this discussion about inflation. It shows how the price for the signature beverage of the U.S. Open has increased faster than the Consumer Price Index (CPI). Over the past decade, its price has risen by 57% compared to 29% for the CPI.
Life in the Real World 2022
Welcome to reality and the world of inflation in 2021-2022. This discussion will briefly mention the Producer Price Index (PPI) but will focus on the CPI.
The current path to inflation began three years ago when leaders adopted COVID-related policies in March 2020. At the time, there was minimal inflation (See Chart II).
In April 2020, the over-the-year Consumer Price Index (CPI) fell to 0.2%. The following month, May, the PPI dropped to -1.4%.
By January 2021, the CPI had rebounded to 1.4%, and the PPI was back to 1.6%, and it seemed that the stimulus support to businesses and individuals was fostering a healthy recovery.
Fast forward three months to April 2021, and the PPI had risen to 6.4%. The CPI was right behind at 4.2%. The recovery had become too healthy.
Overnight, inflation shot up like a rocket. Initially, the changes were ignored or dismissed by leaders. Then the upward trend was called "transitory."
In March 2022, the Federal Reserve acknowledged that inflation was a problem and announced the first in a series of rate hikes to slow demand and reduce inflation.
The Basket of Goods
Tables I-IV show the rapid increase for a portion of the basket of goods and services that the Bureau of Labor Statistics tracks in the calculation of the CPI. Keep in mind that the CPI categories are weighted based on the general spending patterns of consumers. In other words, inflation for housing carries greater weight than prices for butter. Inflation also affects every person differently because they have a distinct set of needs and priorities.
Each table looks at the over-the-year percentage increase in inflation for January 2021, the month when inflation peaked for that category.
For example, the CPI rate was 1.4% in January 2021. It peaked at 9.0% in June 2022 and dropped to 8.2% in September.
Key points from these tables are listed below:
Inflation was reasonably under control at the end of January 2021.
Most categories have increased, except IT commodities and electronics.
Inflation appears to have peaked and is on a downward path for some categories.
Inflation has not peaked for all groups. Put on your seat belts. It could be a rough ride!
Table I includes twelve items from the basket of goods relating to transportation and energy. In January 2021, some had negative values because prices were affected by the pandemic. Contentious energy policies have resulted in greater-than-normal inflation for some transportation and energy items. Inflation may have peaked for some groups in Table I. Unfortunately, consumers and businesses may not be able to afford higher rates. Some indoor tennis facilities will face steeper prices for heat and lights this winter, which may translate into higher dues and court fees.
Abraham Maslow identified items in the first three tables as the foundation of his hierarchy of needs. The inflation rates for many food items are less than energy items, but they are both significant. There is little evidence that inflation for food has peaked, i.e., prices will remain elevated for a while. Food supplies and prices affect the everyday life of consumers and businesses.
The most significant monthly consumer expense is usually housing. Medical care and daycare costs affect the financial well-being of most families. The current price increases for these services are higher than desired.
The inflation rate for recreation goods and services is more modest than other groups. Providers of tennis goods and services will face the challenge of determining whether consumers can afford these increases.
Through various discussions, there are many thoughts about the source of inflation and how to reduce it. It has been determined that the Federal Reserve will raise interest rates (monetary policy) to reduce demand. It will take time, and there will be job losses, but inflation will return to acceptable levels. There will be job losses, lower economic activity, and other obstacles to navigate in the months ahead.
There is saving grace – Honey Deuces. It would be great to kick back with a Honey Deuce in both hands to address the challenges of reducing inflation. Too bad inflation has pushed them into a price range that makes them an unaffordable option.
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