Say Hello to Inflation

Say hello to inflation. There is no doubt that a wave of inflation is setting up to wash over the U.S. and global economies. So far, folks are hoping that declining growth and unemployment will offset the more dangerous levels of inflation as people begin to respond to massive increases in fuel and record increases in food prices. While it is sometimes noted that other elements of the CPI are not showing much inflation it is only because people have stopped buying things like cars and washing machines and second homes.

Inflation creeps in first under the radar of government reporting mechanisms even though some attempt is made to adjust for this. The game that is played centers around “price points” that retailers know from experience cause resistance by consumers when they are exceeded. Price points are left intact while other value robbing adjustments are made. In the food area it means smaller portion sizes with the surface area for appearance about the same, in other words thinner slices and flatter packaging. Sixteen ounce packages become fourteen ounce with little change in package size. The Wall Street Journal just reported that Kelloggs for instance, just announced an average 2.4oz reduction in its ready to eat cereal boxes which is a high single digit or low double digit increase in price while maintaining the "price point". Restaurant portions are gradually reduced with menu prices staying constant.

If you travel, you know airlines are the kings of revenue creation outside of base fares. The airlines know that you are comparing them to each other on base fares. They add cost outside of base fares through luggage fees, charging for what were free cola drinks and snacks (or eliminating them), reducing the number of flights and flight locations causing inconvenience, adding fuel surcharges, charging more and more to change a destination or reuse a missed flight ticket, forcing you to machines for boarding passes eliminating staff, and at St. Louis recently, I noted that American has a bank of phones to call their central agents for rebooking if weather or a mechanical delays your flight thereby eliminating the local staffing needs.

Other techniques include itemized “recovery fees” listed separately from the base rates of cell phone and phone charges, rental car base rates etc. These lists are getting very long and just when you think you have booked that ultra compact rental car for $25/day, you push the reserve button on your browser and discover it has suddenly become $48/day when the “add-ons” are included. A lot of price reporting is made on base prices so much of this escapes the initial tracking of inflation monitors.