Wednesday, 25 January 2012

Inflation Adjusted Historical Palladium Price since 1968 - in Pounds Sterling and US Dollars

Palladium Prices still below its 2000 peak

Palladium is a rare and lustrous silvery-white metal discovered in 1803 by William Hyde Wollaston.  He named it after the asteroid Pallas.  It is is a transition metal and a member of the platinum group metals (PGM).  The catalytic properties of the six platinum group metals – iridium, osmium, palladium, platinum, rhodium, and ruthenium – are outstanding, but palladium has the lowest melting point and is the least dense of them.  This unique property of palladium and other platinum group metals account for their widespread use in the chemical and automotive industries. 

Sources of palladium production are quite limited. More than 80% of world palladium production is concentrated in just two countries: the Russian Federation and South Africa.  The Russian Federation alone accounts for around half of total palladium supply.  The six metals of the PGM occur in nature in close association with one another and with nickel and copper.  They are among the least abundant of the Earth's elements.  Of the few known deposits, those in South Africa and Russia are by far the largest. There are fewer than ten significant PGM mining companies in the world.  

Palladium in used in a range of industries, but in 2011 around 64% of all the supply of palladium were used in the automotiveindustry as the catalyst in automobile catalytic converters, which convert up to 90% of harmful gases from auto exhaust (hydrocarbons, carbon monoxide, and nitrogen dioxide) into less-harmful substances (nitrogen, carbon dioxide and water vapor).  Palladium is also used in electronics, dentistry, medicine, hydrogen purification, chemical applications, and groundwater treatment.  Palladium plays a key role in the technology used for fuel cells, which combine hydrogen and oxygen to produce electricity, heat, and water.  Since 1979, the automotive industry has emergedas the principal consumer of PGMPalladium is even used as an investment throughpalladium coins and bars.  With this ever increasing use and demand for high performance catalysts and every growing number of automobiles, this is a very important element to examine. 
The annual average Palladium price data came from and it dates back to 1968.  The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-Pound Exchange Rate From1791," MeasuringWorth, 2011 at

The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from thehistorical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation:the Value of the Pound 1750-2005" Economic Policy and Statistics Section,Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below.

Historical Annual Average and Inflation Adjusted Palladium Price since 1968 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average palladium price, and the sold lines are the inflation adjusted palladium price.  The first thing that becomes obvious is that the unadjusted palladium price bottomed around 1971 in Dollars a approximately $35 per troy ounce and in 1969 in Pounds at around £13 per troy ounce.  

However when you examine the inflation adjusted palladium price, you notice that its lowest prices was in 1992 in both GB Pounds and US Dollars at around £84 and $140 per troy ounce respectively.  Since them the price peaked in 2000 at approximately £621 and $891 per troy ounce respectively.  It then dropped back to a price similar to that in the mid 1990’s before rising again by 2011 to a value close to the peak in 2000.  Below is a chart showing only the inflation adjusted palladium price with a linear axis (non logarithmic axis, unlike the first chart).
Historic Inflation Adjusted Palladium Price since 1968 in US Dollars and Pounds Sterling

The second thing that you realize is that inflation adjusted palladium price has been fairly volatile since 1968.  There have been several times when the inflation adjusted price increased by a factor of 3, 4 or larger, over a 4 or four years before crashing back down to bottoms around $70 to $100.  In Pounds the values at the bottoms were not close to each other was they were in Dollars.  Nor were the peaks always reaching the same % increased from the bottoms as they did in Dollars, as seen in the 1980 peak.  Using the price in 1971 as a baseline the inflation adjusted palladium price in UK Pounds and US Dollars was indexed and this is shown below.
Historical Inflation Adjusted Palladium Price since 1968 in US Dollars and GB Pounds, Indexed to 1971

The indexed price data clearly displays that the historic inflation adjusted palladium prices has been considerably volatile since 1968.  In fact the most stable period for the price in both US Dollars and UK Pounds, was between the early 1980s until the late 1990s   Additional the average price in US Dollars for 2011, was within 80% of the inflation adjusted peak prices of 2000.  Tit is interesting to note that since the early 2000s the inflation adjusted palladium price in Pounds Sterling has not increased by the same multiple as see for the price in US Dollars.  This phenomenon has been observed occasionally in the long term historic inflation adjusted gold price and the historic inflation adjusted silver price.  It will be interesting over the next few months to see if this phenomenon is also found for other commodity prices hen inflation adjusted in Pounds Sterling?

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Sunday, 15 January 2012

Special Offer - Train Tickets at 1987 Prices

We all have fond memories of using trains in our younger days, and comments such as “I can remember when you could get from Birmingham to London for £20” are commonly heard by the ticket booths in train stations, as people are continually shocked by the current price of tickets.  In recent months, the media have spend a lot of effort reporting the rising cost of transport and the fact that they are increasing faster then inflation: 

In the UK about half of all train fare are regulated by the UK government and are increased according to the formula of the inflation rate as measured by the Retail Price Index (RPI) in July, plus 1%.  In July 2011 the RPI inflation rate was 5%. This leads to the questions:
  • How have train fares compared to UK inflation over the long term?
  • Have they increases on average, in-line with inflation or faster? 
Additionally is the inflation rate as measured by RPI telling the whole story, and does this fairly reflect the affordability of train and bus fares? 

The price data to analyse the relative increases for rail fares, comes from the underlining data for goods and services compiled by the Office of National Statistics (ONS) since 1987.  This is the same data the ONS use to calculate the UK inflation rate as measured by the Consumer Price Index (CPI) and Retail Price Index (RPI).  All the data used here has been index to January 1987 to allow simple comparison of  price increases.  For example an index value of 300 in 2011, means that that the price at this time had tripled since January 1987 (when it was 100).  The charts of the sector breakdown of the ONS inflation data came from

The chart below shows the index values of train tickets against RPI for the last 25 years.  It can clearly be seen that rail fares have increased faster than inflation, as measured by RPI over the last quarter of a century.  A closer examination of the chart reveals an increase in-line with RPI until 1991.  After this, they increased at a slightly faster rate, but not by much.  However since the early 2000s rail fares started to increase faster than RPI.  By 2011 RPI had increased approximately 2.5 times since 1987, compared to train travel which increased by approximately 3.5 times!

So the answer to the first question posed earlier, - yes, train fares have increased faster than inflation over the majority of the last 25 years.
Chart of the retail price index RPI and the train fare price index since 1987 to 2011 showing that train fares have increased at a faster rate than inflation
Chart of Historical UK Train Fares against UK Inflation RPI Since 1987

However does this tell the whole story?  Does this mean that on average bus and rail fares are much more expensive than they were in 1980s?  What about the affect of rising wages over the last 25 years?  Did they rise in line with inflation?

Below is a chart showing the average salary index against RPI.  It can clearly be seen that the average wages in the UK have increased faster than inflation, as measured by RPI, for almost 75% the the last quarter of a century.  It is true that average salaries have been increasing at a much slower rate than RPI since the Credit Crunch which started in late 2008, however over the last 25 years, the compounded growth of average wages has out striped RPI.  By 2011, RPI had increases approximately 2.5 times since 1987, however average wages had increased by over 3 times!
Chart of the average UK salaries growth index and the retail price index RPI  since 1987 to 2011 showing that wages have increased at a faster rate than inflation
Graph of Historical UK RPI Inflation against Average Salary Growth
When train fares are compared to average salaries a different trend is discovered, as shown in the chart below.  It now seems that train fares almost perfectly track average wages over the last 25 years.  There was a slight deviation in the increases in the early 2000s, when train fares increased less than RPI, but this was a relatively small amount.
Chart of the indexed cost of train thickets and average UK salaries since 1987 to 2011 showing that the has increased in line with each other
Chart of Historical Train Fares against UK Average Salary Growth Since 1987

This leads to the next question: how have bus and coach fares increased compared to rail fares?  The graph below shows that rail fares and bus & coach fares are very closely correlated as then have tracked each other very closely since 1987.  
Chart of the indexed price of bus and coach tickets and train fares since 1987 showing that the has increased in line with each other
Graph of Historical UK Train Fares against Bus and Coach Fares Since 1987

This leads to the conclusion that wages make up the largest part of the cost-base for trail, bus & coach fares as they have all increased faster than inflation, but in-line with average salaries for a quarter of a century.  So to get train, bus or coach fares to be cheaper in the future, the companies need to 1) be more efficient or automated (ie reducing the head count) or 2) the wages of their staff need to decrease relative to the national average, or a combination of the two.  Not a very pleasant prospect for the employees in the rail, bus and coach industries, if everyone says that fares are too expensive and must come down in the future.

So train, bus and coach fares are just as cheap (or expensive) relatively to wages as they were 25 years.  This will be a controversial result to many.