CHANGING PRICES, CHANGING CIGARETTE CONSUMPTION

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ChangingPrices,ChangingCigaretteConsumption

Wayne D. Purcell

Local, state, and national policy makers need to fully
understand the impact of price and reflect that insight
and understanding in their tobacco-use education
programs, in their decisions on the tobacco program,
and in their decisions on efforts to assist producers and
producing communities who will bear the brunt of
coming adjustments.

What is the impact of the announced price increases on
United States tobacco consumption? Following the nationally
negotiated settlement between state attorneys general and
tobacco companies, three groups are extremely interested in
the answer to this question. The health community, interested
in the health ramifications of tobacco use, wants to know
what, if any, decreases in usage will result from price
increases to pay for the settlement. The tobacco community,
concerned about the future of United States tobacco
production, is wondering what price increases will mean to
production quotas and to the tobacco program. Policy makers,
interested in any reduction in consumption, are considering
the ramifications of price increases for administration of the
tobacco program and for health costs.

Retail-level price data are not readily available. The
Economic Research Service, United States Department of
Agriculture (USDA) data give the 1998 price of $1.95 per
pack as the median retail price of cigarettes prior to the
significant increase of $0.45 per pack that the companies
announced in November 1998 (Table 1). That $0.45 per
pack increase suggests the median price by late 1999 or early
2000 could be about $2.40 per pack or a 23 percent increase
in the cost of cigarettes to consumers.

Wayne D. Purcell is Distinguished Alumni Professor,
Department of Agricultural and Applied Economics,
Virginia Tech.

Table 1. Retail Price of Cigarettes, 1975-1998

Source: ERS, USDA Tobacco Specialists and Tobacco Briefing Room,
ERS, USDA, May 1999.

The column of deflated prices (Table I) shows cigarette
price with inflation removed using the Consumer Price Index
(CPI) with 1982-84=100. Prices have increased 46 percent
in inflation-adjusted terms since 1982-84, from $0.82 to
almost $1.20. (The price for 1982-1984 was $0.819 per pack.)
Cigarette prices have, thus, increased much faster than overall
prices as measured by the CPI. A $2.40 price for late 1999
would equate to a deflated price of about $ 1.44, up sharply
from the 1998 deflated price of $1.20.

is the Rural Economic Analysis Program in the Department of Agricultural and Applied Economics, College of Agriculture and Life

Sciences at Virginia Tech

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