Tuesday, December 13, 2011 / by Nathan Clark
How to Find Hidden Inflation
I’ve written a few things about inflation in the past, starting a few years ago during what became a global financial crisis. I predicted back then that inflation was going to become a problem in the United States, as monetary policy weakened the buying power of the dollar.
If you recall, recommended hedges against inflation were investments in precious metals, real estate leveraged in current dollars and investments in foreign companies. I know some people who have made such investments and are happy, and I know some people have said “Inflation? What inflation?”
After all, if you read the headlines and listen to the sound bites in the news, it’s easy to be under the impression that inflation has not been a problem. To a degree, it’s not been. But inflation is eroding consumers’ buying power more than you might think.
For example, when the U.S. Bureau of Labor Statistics releases its updated Consumer Price Index – which is what is referenced when the news reports on inflation – the index does not include food and energy prices. These, of course, are two things that just about every household must buy, so removing them from the price equation is somewhat misleading.
In the most recently released statistics, for example, the index shows a 2.1-percent increase in consumer inflation from October of last year to October of this year. Factoring in food and energy costs, however, the real number is 3.5 percent. Gasoline alone has increased in retail price by 23 percent over that time period, putting a dent in household finances no matter what the BLS stats say.
But it’s not just in the numbers where inflation is hiding. In fact, the other item – besides energy – not accounted for in the overall index, food, has been hiding its imact on inflation another way.
You’ve probably heard this before, but it bears repeating because it’s a growing trend: Food companies are reducing quantities in packaging but charging the same price. So even if many of the items you buy at the grocery store haven’t gone up in price per package, they could have gone up by price per weight.
For example, as a New York Times article recently revealed:
• At least one canned tuna company has reduced it’s standard single-can serving from the traditional 6 ounces to 5 ounces.
• Some snack chip brands have reduced the number of chips in bags by as much as 20 percent.
• A best-selling orange juice has gone from a 64-ounce bottle to a 59-ounce bottle.
• Some of the top-selling brands of crackers come with 15 percent less crackers in the box.
These are just some examples. Other items that have taken serving-size hits are ice cream containers, jars of peanut butter, breakfast cereal bars and more. A recent Consumer Reports article indicated that toilet paper – not food, but often a grocery-store purchase – is coming with less on each roll, too.
The point is you can fight inflation by reading labels on the things you buy. The manufacturers of these products are, of course, betting that you won’t bother to do the math, calculating whether that 18-ounce jar at $4.99 is a better buy than the 16.3-ounce jar at $4.79 (it is). And, granted, it is a kind of a pain. But if you’re one of the people griping about how much food costs have gone up, and you’re NOT reading labels, NOT exposing the hidden inflation, then your actions are contradicting your words.
Here are some other tips for combating the inflation that is sometimes hidden from us:
• Buy more produce. Despite increase in overall food prices, fruit and vegetable prices are in decline.
• Cut back on dairy. Dairy and dairy-related products have increased more (9 percent) more than any other food category in the past year.
• Consider a water filtration system at home. Prices of non-alcholic beverages have increased by nearly 7 percent in the past 12 months.
• Buy gasoline in busier areas of town; gas stations with little competition sometimes charge 3 to 5 percent more per gallon.
With interest rates being kept low, money is cheap, which will probably put pressure on the buying power of the dollar for some time to come. There is good news, however, as prices of raw goods went down the last quarter after rising for some time, and manufacturers aren’t as pressured by inflation as they were earlier this year. This savings isn’t necessarily going to be passed onto the consumer, but it may be an indicator that the rise in prices is set to slow a bit.
The bottom line is that to protect YOUR bottom line, you have to do more than compain about rising prices. There are ways to combat inflation; sometimes, it first requires uncovering where it’s hidden.
If you recall, recommended hedges against inflation were investments in precious metals, real estate leveraged in current dollars and investments in foreign companies. I know some people who have made such investments and are happy, and I know some people have said “Inflation? What inflation?”
After all, if you read the headlines and listen to the sound bites in the news, it’s easy to be under the impression that inflation has not been a problem. To a degree, it’s not been. But inflation is eroding consumers’ buying power more than you might think.
For example, when the U.S. Bureau of Labor Statistics releases its updated Consumer Price Index – which is what is referenced when the news reports on inflation – the index does not include food and energy prices. These, of course, are two things that just about every household must buy, so removing them from the price equation is somewhat misleading.
In the most recently released statistics, for example, the index shows a 2.1-percent increase in consumer inflation from October of last year to October of this year. Factoring in food and energy costs, however, the real number is 3.5 percent. Gasoline alone has increased in retail price by 23 percent over that time period, putting a dent in household finances no matter what the BLS stats say.
But it’s not just in the numbers where inflation is hiding. In fact, the other item – besides energy – not accounted for in the overall index, food, has been hiding its imact on inflation another way.
You’ve probably heard this before, but it bears repeating because it’s a growing trend: Food companies are reducing quantities in packaging but charging the same price. So even if many of the items you buy at the grocery store haven’t gone up in price per package, they could have gone up by price per weight.
For example, as a New York Times article recently revealed:
• At least one canned tuna company has reduced it’s standard single-can serving from the traditional 6 ounces to 5 ounces.
• Some snack chip brands have reduced the number of chips in bags by as much as 20 percent.
• A best-selling orange juice has gone from a 64-ounce bottle to a 59-ounce bottle.
• Some of the top-selling brands of crackers come with 15 percent less crackers in the box.
These are just some examples. Other items that have taken serving-size hits are ice cream containers, jars of peanut butter, breakfast cereal bars and more. A recent Consumer Reports article indicated that toilet paper – not food, but often a grocery-store purchase – is coming with less on each roll, too.
The point is you can fight inflation by reading labels on the things you buy. The manufacturers of these products are, of course, betting that you won’t bother to do the math, calculating whether that 18-ounce jar at $4.99 is a better buy than the 16.3-ounce jar at $4.79 (it is). And, granted, it is a kind of a pain. But if you’re one of the people griping about how much food costs have gone up, and you’re NOT reading labels, NOT exposing the hidden inflation, then your actions are contradicting your words.
Here are some other tips for combating the inflation that is sometimes hidden from us:
• Buy more produce. Despite increase in overall food prices, fruit and vegetable prices are in decline.
• Cut back on dairy. Dairy and dairy-related products have increased more (9 percent) more than any other food category in the past year.
• Consider a water filtration system at home. Prices of non-alcholic beverages have increased by nearly 7 percent in the past 12 months.
• Buy gasoline in busier areas of town; gas stations with little competition sometimes charge 3 to 5 percent more per gallon.
With interest rates being kept low, money is cheap, which will probably put pressure on the buying power of the dollar for some time to come. There is good news, however, as prices of raw goods went down the last quarter after rising for some time, and manufacturers aren’t as pressured by inflation as they were earlier this year. This savings isn’t necessarily going to be passed onto the consumer, but it may be an indicator that the rise in prices is set to slow a bit.
The bottom line is that to protect YOUR bottom line, you have to do more than compain about rising prices. There are ways to combat inflation; sometimes, it first requires uncovering where it’s hidden.
