Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

Shrinkflation

Last week, I read a new word: shrinkflation. I haven’t noticed shrinkflation yet in my local supermarket; only (limited) inflation. With the knowledge of hindsight, I did notice shrinkflation when ordering a recent meal: less quality for more money. I doubt that this restaurant will survive.

“In economicsshrinkflation, also known as the grocery shrink ray or package downsizing, is the process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality, while their prices remain the same or increase.” (Wikipedia).

When I shared this topic with my son, he shared his recent experience: a package of various local special beers used to include 5 beers for 15 euro, or 3 euro each. He was flabbergasted when he noticed 4 instead of 5 beers – for the same 15 euro. For a moment, he even doubted his own memory of those 5 beers.

Source: Volkskrant. Image by Chantal Heijnen.

These days, you can no longer hide inflation by shrinkflation. Recently, the prize of so called dollar pizza slices increased from $0.99 to $1.50 – or +50%. See image to the left.

Recently, the Dutch Financial Times featured an opinion-article by the French economist Jean Pisani-Ferry (b.1951).

He argues that the European inflation is different (eg, in nature) than the American inflation. Moreover, the American inflation is worse than the European given the beneficiaries of US government support.

One wonders who would care about this difference in European and US consumer price inflation because its feeling is by and large the same. The key question is who or what will be blamed (eg, in new elections).

Inflation can give rise to a massive shift in national politics as it provides a fertile ground for civil unrest (eg, hyperinflation in the German Weimar Republic of 1921-1923). Germany is still paralyzed by those events (eg, FD, Zeit-Online). However, that German paralysis also created its new extreme left and extreme right.

Inflation is a macro issue (eg, CPI) with a micro impact (eg, household budget). That is probably a reason why politicians fear inflation so much, because inflation makes them look and feel incompetent (eg, LiveMint-2021, UK PM fears inflation more than partygate, Inflation could spell trouble for Democrats).

Source: GZERO Media (eg, Wikipedia)

Please take a look at the diagram to the left that compares inflation and interest rates in USA for a 50 year period. Often interest rates are close to – or just above – inflation but not as of 2020.

Interest rates are (a.o.) used in Discounted Cash Flow calculations to determine the total value of future earnings in today’s money. Business cases for potential future investments make similar calculations.

Pensions may have an inflation adjustment while its long-term liabilities have a Net Present Value calculation at near-zero % that would almost be equal to nominal value.

The gap between a near-zero % interest and a 5+% inflation spells trouble.

Trouble Man (1972) by Marvin Gaye
artist, lyrics, video, Wiki-1, Wiki-2, Wiki-3

I come up hard, baby
I’ve been for real, baby
Gonna keep moving, gonna go to town
I come up hard, I come up gettin’ down
There’s only three things, that’s for sure
Taxes, death, and trouble, oh

Note: all markings (bold, italic, underlining) by LO unless in quotes or stated otherwise.

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