Shrinkflation – Real Inflation Much Higher Than Reported

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

  • Shrinkflation – Real inflation much higher than reported and realised
  • Shrinkflation is taking hold in consumer sector
  • Important consumer, financial, monetary and economic issue being largely ignored by financial analysts, financial advisers, economists, central banks and the media.
  • Food becoming more expensive as consumers get less for price paid
  • A form of stealth inflation, few can avoid it
  • Brexit is the scapegoat for shrinkflation by the media and companies
  • Consumers blame retailers rather than central banks
  • Gold hedge has doubled in value since 2007 

Shrinkflation: no one left untouched

600 new words entered our official lexicon this week as the Oxford English Dictionary announced the latest new additions to their online records.

One of the words reportedly up for consideration was shrinkflation. It did not make the final cut and as a result continues to be defined by the authority as ‘a portmanteau, made from combining shrink: ‘to become or make smaller in size’, with the economic sense of inflation: ‘a general increase in prices and fall in the purchasing value of money’.

In order for a word to be accepted into the OED it must have been in use for at least five years. But the latest list suggests that this isn’t the case and exceptions can be made. The inclusion of ‘superbrat’, a word which is usually associated with the behaviour of John McEnroe in the 1970s, actually dates back to the the 1950s.

Yet, shrinkflation continues to elude the world’s authority on the English language. This seems bizarre to us given both the word and the phenomenon and something consumers have been experiencing for a number of years.

Although it is understandable in the context of an important consumer, financial and economic issue which is being largely ignored by financial analysts, financial advisers, economists and the media.

We first covered the shrinkflation phenomenon back in 2014 when we reported how  Dr. Philippa Malmgren had highlighted this ‘shrinkflation’ trend in a new book.

Shrinkflation: A New Phenomenon?

As we mentioned last week, shrinkflation is a phenomenon that is not unique to the current financial crisis. In 1916 The Seattle Star ran a front-page story on the issue, ‘“[Inspectors] went from bakery to bakery Thursday checking up on the bread situation…And here is what they found: ten-cent loaves of bread have shrunk from 32 ounces to 22 ounces, and standard 5-cent loaves, that used to weigh 16 ounces, now average 11 ounces.”

Search Graph for Shrinkflation (Google)

Granted, back in 1916 the word ‘shrinkflation’ was not in use but it had a place firmly in the economy. Use of the word shrinkflation has been picking up pace since at least 2012. We can see this by the examining the search history for the phrase on Google.

You can clearly see a peak in the search for the term in November 2016. It was at this point when news of the newly designed Toblerone hit the British newspapers. Mondelez, Toblerone’s manufacturers had announced they would be reducing the bars from 170 grams to 150 grams in the UK which would affect the shape.

Mondelez’s justification for the change was due to an uptick in ‘many ingredients’ prices’, the company specifically blamed the drop of the euro against the Swiss franc in January, and an increase in cocoa prices over the last three years.

Cocoa Prices – Money Week

It’s not just Toblerone fans who are feeling the pinch on chocolate bars. Creme Eggs and Quality Street (other British high street favourites) have been shrinking, with price remaining the same.

Other household items and food prices have also been affected.

Brexit Is The Scapegoat

Even though we can go back nearly 100 years to witness shrinkflation and see evidence of it in our household items and online searches, it is only in the last year that manufacturers and the media have managed to find a reason for its existence.

Brexit is being blamed – as it is being blamed for a number of woes being experienced in the UK at present.

Brexit seems to be bearing the brunt of the blame for the recent shrinkages, thanks to the impact of the referendum of the price of sterling. You don’t need to have a PhD in economics to understand the effect this has on prices.

12 months since the vote sterling is still weak, it is 15% down against the US dollar, and 14% against the euro. Things are expected to get worse, with HSBC analysts expecting the pound to hit parity with the euro by the end of the year.

There is little doubt that a weak currency will impact the cost of raw goods and materials which make up chocolate bars and other items. However shrinkflation existed even when the pound was strong.

No Sign Of Easing Up

In 2015 the Irish Times reported on this very topic and referred to a 2014 Which? survey:

Aunt Bessie’s Homestyle Chips were reduced in size from 750g to 700g, while a box of Surf with Essential Oils washing powder fell in size from 2kg to 1.61kg. In 2014 there was 750g of mixed vegetables in a Birds Eye Select bag; today it is 690g. Cif Actifizz Multi-Purpose Lemon Spray and Domestos Spray Bleach Multipurpose Cleaner were reduced in size from 750ml last year to 700ml today…

‘The shrinkage does not end there. In previous years, Which? has recorded one- litre tubs of Carte D’Or ice cream turning into 900ml tubs, while a litre of Innocent smoothies became 900ml. Magnum ice creams, which used to be 360ml, are now 330ml, and the size of a bar of Imperial Leather soap fell from 125g to 100g, a reduction of 20 per cent…

‘The list goes on. A packet of 48 Persil washing tablets turned into a packet of 40, a decline of 16.6 per cent, while 56 Pampers Baby Wipes used to be a packet of 63, an 11.1 per cent reduction.’

This was well before the EU referendum. It was impossible to blame a weak currency, instead this was and remains all about the impact of real inflation on consumer prices. This is despite having been told for years that inflation was very low.

UK Inflation Expectations (FT)

Inflation expectations are relatively low amongst households in the UK, EU and U.S.

Only now are we beginning to see both officials and individuals wake up to the presence of inflation in the UK. In May consumer prices accelerated faster than BoE expectations. They hit a four-year high of 2.9% and are expected to exceed 3% in the coming months.

In the UK, there are some concerns and dissent has increased in the BoE’s monetary policy committee (MPC) over the suitability of its record low interest rate policy in regard to rising inflationary pressures. It has been some time since we have seen any sign of concern regarding inflationary issues, from members of the MPC.

Meanwhile in households it looks like it has taken the appearance of a chocolate bar to drive the message home that businesses are experiencing price pressures. Unfortunately this has merely come out as anger towards companies rather than the central banks and governments who are ultimately responsible for this inflationary issue.

Unjust for consumers or time to take responsibility?

Which? magazine and consumer action groups have tried to bring retailers to account for what are considered to be misleading practices.

In Ireland, the Consumer Association’s Chief Executive stated

“I don’t know if we can say consumers are being deliberately misled but they are being put in a position where it becomes very difficult to make informed decisions.”

“I think the worst example of this is the widespread shrinking of products. The content gets smaller but the price and the packaging stays the same. These are price increases by stealth, and by any measure inflation of this nature is abnormal in the current environment. I think they are appalling.”

As we have seen with quantitative easing, bank bailouts and the overall financial crisis consumers seem to be relatively disinterested in fighting back against these practices that ultimately cost them more.

A YouGov survey found that 46 per cent those polled would prefer to pay more for an item than see it shrink. Yet 36 per cent said they’d be satisfied if the pack got smaller, but the price stayed the same.

The same survey run by YouGov Portion Sizes and Health found that firms risk losing over a third of their customer base if they cut pack sizes by 15 per cent.

While there is uproar on Facebook pages about this topic, the concerns of some consumers are not being voiced by politicians, economists, central bankers or the media.

Depite the zeitgeist of the moment, this isn’t about retailers taking advantage of consumers. Shrinkflation is a very serious byproduct of a practice which has been going on for many years now.

Shrinkflation is just inflation in stealth mode and is the consequence of currency debasement on a scale that the world has never seen before.

It brings the economy’s problems literally to the kitchen table.

We are finally at a point where those who have so far been apparently untouched by the financial crisis i.e. the middle classes who still have jobs, they have seen their homes increase in value and they still go abroad twice a year, are beginning to see their cost of living increase.

As are the working classes, pensioners and those on low salaries or fixed incomes.

They will soon recognise that no one is left unharmed by the monetary and economic policies which followed the financial crisis.

Easy monetary policy is wealth ignorant. It gives little regard to how you spend your money and where you hold your cash. That’s why savers have to make room for those real assets which cannot be shrunk down and magicked away.

Investments such as gold and silver by their very nature are immune to the shrinkflation effect and are an important hedge against it.

Next time you’re considering that bar of Toblerone at the supermarket checkout, just imagine how much is missing compared to when you would have bought with the proceeds of your first payslip.

Then consider how much a bar of gold would have changed since then, the fact is that it hasn’t. You would still have the same sized bar, with the same gold content and it is worth a lot more now.

Gold in USD – 10 Years

Gold is twice the price it was before the crisis in 2007. While many household goods and products are higher in price or the same price but a much smaller size.

Shrinkflation is happening and real inflation is much higher than is being reported or people realise.

Your purchasing power and your wealth can be preserved from the ravages of shrinkflation, just don’t expect it to happen courtesy of central banks and governments.

CONTINUE READING –>

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Lying About Inflation While Food Prices Skyrocket

By Dale Netherton – Re-Blogged From iPatriot

Here’s an interesting statistic. In a recent survey, the Food and Agriculture Organization said its index which monitors monthly price changes for a variety of staples averaged 231 points in January — the highest level since records began in 1990.  This was in 2011.  How can this be ignored by so many?  The government has decided food prices are too volatile to be considered in how we measure inflation.  Doesn’t this theory have to be substantiated when food prices are not volatile and just keep rising?  What difference does it make to the consumer if what they are paying more for is considered exempt from being reported?  In other words the price you are paying for food is going up but we are not going to report it going up because it might go down?  Meanwhile if you are on a fixed income you will have to do with less while we cast an illusion that the inflation we are creating with printed money won’t be reported as threatening to your standard of living.

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Keep The Money Game Churning

By GE Christenson – Re-Blogged From http://www.Gold-Eagle.com

There is money to be made so the game must be played…  It’s always “ShowTime” in the financial markets.  What is the game plan?

Levitate the bond market. See chart below.  Keep those interest rates dropping so the bond market continues its 35-year climb.  Oops – $7 Trillion in bonds with negative interest rates, at last count, with more from Japan this week.  Have we reached a limit?  Probably not, but what could go wrong lending money to insolvent governments who guarantee they will return less than they borrowed in 10 years?

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Technology, Prices, and Money Printing

cropped-bob-shapiro.jpg   By Bob Shapiro

What effect, if any, do technological improvements have on the general price level? I believe that technology causes prices to go down. Here’s why.

Back in College Economics 101, a professor explained how prices are set by companies. He said they subtract their cost estimates from various projected selling prices to find the various possible profit margins. Then they chart that against the expected units sold at the various prices.

Where the two graphs cross gives the maximum profit (but companies would trim the volume, and raise the “best” price, to achieve a desired ROI (Return on Investment)). In the real business world, its nowhere near that exact, but the general outline of the process makes some sense.

To be sure, there are a ton of estimates that need to be made. Businesses which do a poor job of the estimation process, risk going out of business (prices set too high -> not enough customers, prices too low -> not enough profit) . Over time, this leaves only better estimators as suppliers of goods and services.

Now, the number that a business can improve is the cost to produce the product. If technology improves, it can reduce the costs to produce. For example, if human technology improves, through employee training for example, quality goes up and reject rate goes down, so the cost for the value offered goes down, leaving room for more profit and a lower selling price.

Image result for technology clipart

If process technology improves, as when Henry Ford introduced the production line, costs fall allowing selling prices also to fall. And, if machinery technology improves, as when CNC controls allowed for greater use of robotics in manufacturing, costs and prices will tend to go down.

The point is that, any time that any form of technology improves, the price of the item sold will go down – or more correctly the value to the customer will go up. Over time, better value will replace lesser value, and the general price level for all items offered onto the market will go down.

Yes, the basket of goods and services offered will change over time. Yes, the concept of combining the prices of apples and oranges into a general price level is sketchy at best. But, if all else were held equal for 100 years (yes, an impossibility), you would expect the prices to be lower, and value to be higher, for eggs & milk, dresses & suits, pots & pans, cars, homes, computers & pianos, and everything else offered for sale.

In fact, during the 1800s, while the US was on a Gold or Gold/Silver Monetary Standard, prices did indeed decline.

FED Monopoly Money

Since the FED (US Federal Reserve) was created in 1913, the supply of paper money – M2 – has increased by about 400 times (that’s NOT 400%!). Over the long term, such debasing of the currency will result in prices which are higher than without the money printing.

The BLS (biased) CPI has gone up about 24 times since then, while others (eg. http://www.ShadowStats.com) show about a 60 times increase in prices. Using a low side guess at technological improvement of 2% a year (3% might be more like it), we might expect a 7 fold improvement in prices/value over that 100+ years since the FED started printing. This gives about a 400 times increase in prices since 1913 (60*7)!

Instead of the price of a $1.00 item in 1913 going down to about $0.14 today, all of the FED’s debasement of the money supply has caused that $1.00 item from 1913 to go up to $24.00 (BLS numbers) or to $60.00 (ShadowStats.com numbers).

Now truly, other factors come into the equation. New items & categories of items are invented, and consumer preferences change.

With Gold and Silver, there can be times of large new supplies of these monies in the short run. But paper Dollars were needed to have the 400 times M2 increase we’ve seen with the FED. The FED has robbed all Americans with that 400 times printing of Dollars. All Americans are paying 400 times more than they would have paid. Americans’ life savings are losing value because of the FED’s unending printing.

We need to ratchet down the FED’s ability to create more paper Dollars, so that eventually, we can end the FED.

Restaurants Try to Make Customers Eat Obamacare

B Joe Scudder – Re-Blogged From http://www.politicaloutcast.com

Chief Justice Roberts said that the Affordable Care Act’s fine for not purchasing Obamacare insurance was Constitutional because it was really a tax. That was legally outrageous but it was economically interesting. What is the difference between the government taxing you for the sake of “services” the government wants to provide and the government fining you for the same reason? The fact is Obamacare is a massive tax in lots of ways. Being required to pay more for services we don’t want (at least, not at that price) is no different than having our taxes raised.

And it has the same effect on businesses–it hurts and destroys them. Ellie Bufkin writes at The Federalist,

By now most people have heard that many popular restaurants in New York City have abolished tipping, and raised their menu prices by up to 40 percent, which now gives them the ability to pay everyone on staff more and provide full-time health coverage. Some restaurants tried a different tactic, including Brooklyn pizzeria Franny’s. They announced that checks would soon include a line item that reads “3% surcharge for Obamacare,” then quickly reversed that decision after complaints. Now they will raise all their prices, despite their concerns this means “putting $22 pizza on the menu.”

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Law vs Legislation

cropped-bob-shapiro.jpg   By Bob Shapiro

In our society, and every society, there are rules. Ideally, all the rules are applied equally, and nobody feels put out by having to abide by them.

Some rules evolved naturally, as a consequence of some activity which people engaged in. That’s why in the US, and in many countries, we drive on the right. We decided, when we still were using horses and buggies, that keeping to the right – even when walking on the sidewalk – facilitated movement.

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EPA Clean Power Plan Will Hit Blacks And Hispanics Hardest

By Harry Alford = Re-Blogged From http://news.investors.com

The Obama administration, the Environmental Protection Agency and environmental activists frequently claim that climate change will disproportionately affect poor and minority communities. This, they argue, justifies unprecedented environmental regulations like the EPA’s soon-to-be-finalized “Clean Power Plan” to cut U.S. greenhouse gas emissions by 30% by 2030.

But what effect will the regulation itself have on minority communities? A new study commissioned by my organization, the National Black Chamber of Commerce, answers this question. The Clean Power Plan will lead to lost jobs, lower incomes and higher poverty rates for the 128 million blacks and Hispanics living in America. This should serve as a warning to federal and state lawmakers as they prepare for this sweeping regulation to go into effect in the coming months.

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