There’s more than one way to define “inflation”
We’ve seen the headlines about rising prices, and the looming possibility that inflation could be around a lot longer than central bankers think.
But what about another kind of inflation that doesn’t deliver sticker shock, but still reflects a higher cost for goods and services? Welcome to the world of “shadow inflation, ” where your dollar doesn’t deliver as much as it used to:
When there are shortages of labor or supplies, some businesses adjust mostly or entirely by raising their prices. Others find less obvious, less easily measurable ways to adapt. Consider, for example, rental cars versus hotels. Both were dealing with shortages. But they showed up in different ways.
“The car company just had to charge higher prices, while the hotel could take the hit through service quality instead,” Mr. Cole said in an email exchange. “We measure them in different ways. The car company’s problem gets measured as inflation, while the hotel’s problem is mostly relayed by anecdote.”
There’s also the old standby that doesn’t make its way into official statistics: “shrinkflation”…
The rising price of everything from berries to corn is placing food producers and grocery stores in a bind, pushing them to decide whether to increase the sticker price or to shrink the package and charge the same amount. Because many shoppers tend to base their purchasing decisions on price, rather than examining the weight of the package, some producers and grocers are opting for the latter.
“If you are a manufacturer or retailer, you have a couple of choices — you can keep prices the same, which means you have lower margins. Second, you can run fewer promotions, and that definitely happened in the last year,” said Anne-Marie Roerink, the founder of market research firm 210 Analytics. “And the third measure is to keep prices the same but have a little less in the box.”
She added, “In times of high inflation, your ribeye will be cut a little thinner, so you are around that price point that a consumer believes is ideal.”
Regardless of what it’s called – shadow, shrink, or just plain inflation — your dollar isn’t going as far as it did a year ago. Is it time to put on our vintage “Whip Inflation Now” buttons?