Weekend Post - Inflation in World of Warcraft

for other ideas on the glyph market and other general tips see the free Croda's Inscription Gold Guide

I aim to post every two days one this blog. However, i find that my weekend posts generally get less attention (i suspect most people read posts during the week and therefore land on my homepage and read the post i did at the weekend at the same time). Therefore, for the weekend post i plan to post on how the World of Warcraft economy relates to the real world or theoretical concepts for the World of Warcraft economy. Ironically, it is this subject matter which causes the most email traffic!

Inflation is a measure of the price rise of a basket of goods.  For our purposes in World of Warcraft inflation is the price rise of new raw materials and old raw materials which leads to a price rise in crafted items, and the higher costs of NPC items, repairs etc . . . . essentially to us it is the rise in cost of living in the World of Warcraft.  And typically inflation hits with new content where new raw materials and NPC items are more expensive than in the last content.

For normal players this is compensated by higher gold drops from mobs, bosses and quest awards which leads to more money being in the economy.  In many ways, Blizzard are reacting to their own created inflation by paying the player base higher gold wages – which is how the inflation mechanism can work in the real world.  Higher costs of living see workers demand higher wages to compensate.

Where it affects all players, but particularly those with large gold balances, is that these gold balances are able to buy less of the new raw materials and new NPC items than they could have bought the equivalent under the old content.  In other words, the buying power of our gold falls as we move into the new content.  Things are just more expensive but our gold level is the same as it was the night before the new content.

For example, I sit there with 1.5m gold.  What you don’t see is the raw materials and crafted goods in my inventory as well.

Hence, i don’t need to spend any of that 1.5m to enhance my gold making process – it is in effect dead gold.  It is this 1.5m gold that is hurt by inflation.

My raw materials and crafted items though will go up in value and so are in part inflation protected.

Compare to someone with say 10,000 gold and the rest in raw materials and crafted items – they are less hurt but nonetheless that 10,000 gold still loses some purchasing power in the move from old to the new content.  Their raw materials and crafted items, which will form a larger part of their wealth, will rise in value as the new content comes in.

The question therefore is how to protect that 1.5m gold from inflation.

In the real world that surplus gold could be invested to generate a return – the higher the target return then the higher the risk required to achieve it.  That is not an option in World of Warcraft.

Therefore the route many take is to buy raw material items and NPC items that they believe will rise in value in the new content and then sell those items once the new content arrives.  The “profit” made is in fact merely inflation profits and they are merely holding their own with the inflation – but at least they have inflation protected their gold.  Not a bad idea – as long as you select the items to buy that will go up in value.

Personally, i increase my raw materials to meet the increased demand for glyphs but otherwise i just take it on the chin and live with it.  The additional amount of gold i need to spend on the new raw materials will be compensated by the higher prices of the new crafted items.