This Thing Called “Inflation” (L-O-N-G)

From a past Dollar Stretcher Reader Outrage: “Have you noticed that the size of a bag of chips keeps getting smaller? A few weeks ago I purchased a bag of chips-13 oz. (down from the previous 16 oz.). This weekend (4th of July weekend, of course) the size is now 11.75 oz. The price is still the same (sale for $2.00 a bag). What is going on? This is outrageous!”

No, it’s inflation. There are two things you can do about it:

1. Stop buying those chips, or
2. Find a cheaper source for them.

Now for a lesson in personal economics: the price of things goes up because the cost of procuring them from a supplier has gone up. Usually, that’s because the cost of supplies to make the item in the first place has gone up.

Two things drive up the cost of supplies for making this item:

1. high demand with scarce availability, or
2. cost to grow, mine, import, transport, etc. the basic materials.

If the price of raw materials that go into making those chips, or any other item, goes up (due to supply shortages or obtainment cost), then you can expect the price of the finished product to go up as well—cost increases are passed right down the line to you, the end consumer.

Those cost increases will take one of two forms:

1. shrinking size, or
2. an outright price increase.

In case you haven’t noticed lately, your chips aren’t the only thing to “shrink” while the price remain the same—take a closer look at coffee, cereal, so-called “ultra” laundry detergents and bleach, shampoo, canned goods, and sugar. Except for the bleach and shampoo, all these things used to be sold by the pound. Price increases cut into demand for these items, so the alternative was to decrease size while retaining the original price—a slick marketing move that works! We, the customer, are so focused on that shelf price that we don’t even notice product size any more.

When was the last time you saw a full pound of coffee that didn’t cost an arm and a leg? How about a five-pound bag of sugar or a 16-oz. can of green beans? Remember when tuna came in 8 oz. cans? Probably not—that may be before your time. Now, sugar comes in 4-lb. bags, tuna comes in 6-ounce cans, and canned vegetables use 14.5 and 15-ounce cans as the norm. A most recent shrinking episode can be found in canned salmon: a product once sold (as recently as last year) in 15-ounce cans now comes in 7.5-ounce cans—a whopping 50% price increase, yet nobody stormed the corporate offices of Star-Kist, Chicken of the Sea, Libby’s, or any other salmon canner. No protests were seen in the streets, no letter campaigns were launched, and as far as I know, no congress critters were called to action on anyone’s behalf.

The flip-side of this inflation coin comes from pure greed on the part of retailers: if something’s moving off the shelf with steady demand, why not attach a “premium” on it and make a profit? It’s that much more cha-ching in the register, thanks to pricing power—this usually comes from people willing to buy the product at any price.

This is called capitalism. Retailers are capitalizing on your demand, as they should. If you’re stupid enough to pay top dollar for an “in” product, you get what you deserve when the trend dies out.

Deceptive pricing also gets products to move off the shelf—canned goods that barely moved for .59 each are now placed on a special display marked 4/$3.00, and are suddenly flying out the door. Meanwhile, the retailer makes a .16 “ignorance” profit from each and every can as long as the display stays up.

This is also capitalism. Retailers are capitalizing on your ignorance when faced with such a choice, as they should. If you’re stupid enough to fall for obvious marketing traps, you get what you deserve when the “sale” ends.

If you find yourself outraged at this and other inflationary practices, you have nobody to blame but yourself—for not being aware this is happening, not knowing why this is happening, and not having a plan to counteract it. Rebelling solely against high prices will only get you the “incredible shrinking” product for the same price, and you’re right back where you started—voting with your wallet is the only effective maneuver you can make. You need to stop buying the product altogether, or find a cheaper source for it (such as another store or another brand).

This is the importance of having a calculator and price book in your possession—you can observe and record prices from all sorts of stores in your area, giving you an instant list of back-up suppliers and prices for your normally purchased goods. When you are out shopping and notice a new low price for something old, make a note of it—then buy it if you have a need for it. No more excuses for economic ignorance, or standing defenseless in the face of inflationary times!

If you take anything away from this, let it be this one thing: don’t let shelf prices bother you. Focus instead on unit price—if the shelf price has gone up a nickel, look at the unit price (price per oz., pound, etc.) and compare it to your price book notes. Chances are good that the unit price hasn’t really changed at all, meaning you can easily withstand a few extra pennies in price increases or ounces in size shrinkages. Every unit counts and every unit has a cost—be sure to get the most you can for your product price.

Find the cheapest unit cost for regularly-purchased items before considering the use of coupons or rebates—after all, these are marketing campaigns too, and the products tied to them are usually cheaper after the promotional deals are over. What’s worse is the competitor(s) were always cheaper (per unit) all along, even without a rebate or coupon.

Now you can have your chips and eat them too!

My own most recent bout with inflation came in the form of liquid laundry detergent: I used to buy gallon sized (128 oz.) Tempo at Kroger for $1.99. To my horror, I discovered the price is now $2.49. I didn’t bite—I chose homework instead. Knowing already that there is no lower price than $1.99 for any liquid detergent in my local grocery stores, I went to Froogle for other sources, and sure enough, Ace Hardware had 100 oz. Ajax liquid on sale for $2.00. I suffered both a price increase AND a loss of product quantity that day—per ounce, it only came to 1/10th of a penny between the two products, but also it came to a 1 3/4 load loss of detergent (a 28-ounce decrease in overall size). I loaded up at Ace while I could, because the price wasn’t getting any lower as I stood there. Otherwise, to have my old size would’ve meant a .50 price increase—since when is 28 ounces of detergent worth an extra .50? When the difference between the old and new unit price were multiplied by 128, it only came to an honest .45 increase overall. I guess the maker of Tempo, or maybe Kroger itself, was accounting for getting rid of the penny or something.

I’m not sure who to blame for this—the retailer or the manufacturer—but the result was the same: Mama has new laundry soap for now. I suspect Kroger was taking advantage of a product flying off its shelves, but it really doesn’t matter. Ace is now the place, helpful hardware man or no, and I’m going to carefully scrutinize their ads from now on when they come in the “Junk Mail Tuesday” deliveries.

I didn’t scream, I didn’t vent publicly, and I didn‘t wage war on Proctor & Gamble, Unilever, or Kroger…I merely changed the place where I buy laundry detergent (for now). I admit a hardware store is the last place I’d look for laundry bargains, but there it was, and so I went. I voted with my wallet, and Ace Hardware will surely be most appreciative. If needed, I will vote with my wallet again in the future, and move somewhere else.

I imagine a bleach rebellion isn’t far away—it followed the LAST liquid laundry detergent upheaval. I may as well go to Froogle now and launch a pre-emptive strike.

But first, my newly-delivered copy of The Undercover Economist is calling me…