“It’s one banana, Michael. What could it cost? $10?”
Randall Munroe’s xkcd webcomic recently referenced FRED in a wonderful infographic that responds to the above question from the “Arrested Development” sitcom. Basically, an oblivious wealthy character reveals they have no clue how much things cost.
The infographic starts with FRED price data to make some projections about how far into the future you’d need to go for a banana to actually cost $10. And when art imitates (FRED) life, the FRED Blog notices!
So we respond to this same question with the help of FRED’s friend ALFRED,* constructing a graph of banana prices that uses data series from the BLS and the FOMC: the annual average price of bananas between 1980 and 2023 (blue line) and the projected annual value of the PCE price index for 2023 to 2026 (red line). The custom dotted vertical line marks the end of the historical record and the start of the estimated projections.
The graph stops at 2026, the last value at the time of this writing of current FOMC projections. The price data go from 8.5 cents in 1980 to 15.7 cents in 2023 and are projected to reach 16.2 cents in 2026. At a PCE price index inflation rate of 2% (the FOMC’s inflation target), it will take 210 years for a banana to reach a price of $10.
How this graph was created: In ALFRED, search for and select “Average Price Bananas.” From the “Edit Graph” panel, use the “Edit Line 1” tab to enter the formula a/4 to customize the units from dollars per pound to dollars per banana. We used data from the US Department of Agriculture to calculate how many bananas, on average, make a pound: 1 Lb. = 453.6 grams; 453.6 grams per pound divided by 115 grams per banana is approximately 4. Use the “Add Line” tab to search for and add “FOMC Summary of Economic Projections for the Personal Consumption Expenditures Inflation Rate, Central Tendency, Midpoint.” Type the formula (0.637/4)*(1+(a/100)) to calculate the future price of a banana, matching the median projected value of inflation estimated by the FOMC. The projected 2023 price doesn’t align with the average 2023 price reported by the BLS because the projected price is calculated as the reported 2022 average price ($0.637) inflated by the projected 2023 growth in the PCE (2.8%).
* We use ALFRED here because it’s static in time, while FRED updates with the newest data. When the next summary of economic projections is released by the FOMC, an updated FRED graph in this post would create a cognitive dissonance with the post’s static text.
Suggested by Diego Mendez-Carbajo.
