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Page added on January 4, 2014
Inflation is Already Here… But It’s Being Masked
Since 2007, the world’s Central Banks have collectively put more than $10 trillion into the financial system since 2008. To put that number into perspective, it’s equal to roughly 15% of global GDP.
This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation to hit the financial system. Indeed, the first signs are already showing up… not in the “official” Government data (which is bogus) but in how those who run businesses around the globe are acting.
Most people believe that when inflation hits, prices have to go higher. This is true, but higher prices can be manifested in multiple ways. Firms usually do not simply raise prices in nominal terms as price elasticity can kill revenues because it would hurt sales.
Instead, companies resort to a number of strategies to maintain profit margins without hurting their sales. One of them is to simply leave part of a package EMPTY, thereby selling LESS product for the SAME price (a hidden price hike).
Food manufacturers, like the politicians currently debating health reform, may have a solution to the obesity crisis: Feed Americans a lot of hot air. But this heated air is not just a figure of speech for packaged goods companies including Ralcorp Holdings’ (RAH) Post Foods and PepsiCo (PEP) subsidiaries Frito-Lay and Quaker.
In many packaged products, as much as 50% of the contents is just empty space, an investigation by Consumer Reports reveals. And we consumers are buying that nothingness every day.
Another tactic corporation use is to simply sell smaller packages for the SAME price (another means of selling less for MORE= a price hike).
U.S. Companies Shrink Packages as Food Prices Rise
Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.
Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don’t notice that they’re getting less of the product for the same price.
http://www.dailyfinance.com/2011/04/04/u-s-companies-shrink-packages-as-food-prices-rise/
However, perhaps the most scandalous policy employed by companies looking to engage in stealth price hikes is to swap out higher quality ingredients for lower quality/ lower cost alternatives. One bigname coffee maker was caught doing this just a few years ago.
Reuters is reporting that many of America’s major brands have been quietly tweaking their coffee blends. While most coffee companies consider their blends trade secrets, and are loath to disclose exactly what goes into them, both circumstantial and direct evidence suggests they’re now substituting lower-grade Robusta beans for some of their pricier Arabica, and degrading the quality of our coffee…
At least one coffee roaster has admitted it. In November, Massimo Zanetti USA, which roasts for both Chock full o’Nuts and Hills Bros., publicly confirmed upping its Robusta usage by 25% this year.
Why the switcheroo? Prepare to not be shocked. The answer is: price.
Last year, a shortage of Arabica caused prices of the premium bean to spike as high as $3 a pound — $2 more than what a pound of Robusta would cost. This compares to a five-year historical trend of Arabica costing closer to 70 cents more than Robusta. In recent weeks, the trend has reversed, with Arabica prices falling to just a 62-cent premium over Robusta.
In simple terms, inflation is already around us, though it’s not yet showing up in LITERAL price hikes. Instead, we’re all paying MORE for LESS. And it’s only a matter of time before the situation really gets out of control.
8 Comments on "Inflation is Already Here… But It’s Being Masked"
Stilgar Wilcox on Sat, 4th Jan 2014 4:18 am
In the 1980 movie, ‘The Blues Brothers’, Jake & Elwood are trying to get 5,000 dollars to pay a property tax bill so the orphanage they grew up in isn’t repossessed. Five G’s these days will get you 3 stitches.
In 1965 my brother broke his arm at the elbow which required a specialist to put all the chips back together again. I smashed a kidney and spent 3 days in the hospital and luckily it stopped bleeding internally so it didn’t have to be removed. I also broke my arm, but it was a simple break. Total cost: $2500. and my Father never stopped talking about that Summer and thank God we had health insurance.
We know some people whose 19 year old son just died of a brain tumor. They just got two bills; 1) 998,000 2) 1,002,000 which just happens to perfectly equal 2 million dollars! It’s a joke of sorts because they can never pay it all back.
SilentRunning on Sat, 4th Jan 2014 5:36 am
I was in a convenience store just today and was looking at the snack foods – I noticed a 7 ounce bag of popcorn for $3.49
I was amazed that people would pay over $7 a pound – more than most meats – for (still) cheap puffed corn and salt. Oh yeah – the bag was large, but was over half empty – filled with just air.
SilentRunning on Sat, 4th Jan 2014 5:39 am
Oh yeah – my 401K did great this year – up over 25%. Still, I wonder how much good it will do when a 1 ounce bag of air/popcorn will cost $500.
Arthur on Sat, 4th Jan 2014 11:18 am
Few people have so good memories that they can detect an inflation of 15% over six years. In fact 15% is not that bad, considering what happened in 2008. In the seventies Italians had 10% inflation per year or so, to compensate for the notorious lack of joy them paying taxes.
J-Gav on Sat, 4th Jan 2014 3:57 pm
Inflation is not shockingly high at this point in time in developed countries (check out Zimbabwe, where they stopped filing statistics and abandoned their own currency). Nevertheless, the sly price rises indicated in the article are real and there are others they don’t mention, including hedonic price rises, for example. And, as usual, the people these hit most are those who can least afford to pay for them.
superkaos on Sat, 4th Jan 2014 7:40 pm
Degrading the quality of American coffee? how is that even possible? Just kidding 😀 interesting post.
robertinget on Sat, 4th Jan 2014 9:50 pm
Converting to using USD’s for currency stopped Zimbabwe’s runaway inflation.
Did you know this?
Other nations besides the United States use the U.S. dollar as their official currency, a process known as official dollarization. For instance, Panama has been using the dollar alongside the Panamanian balboa as the legal tender since 1904 at a conversion rate of 1:1. Ecuador (2000), El Salvador (2001), and East Timor (2000) all adopted the currency independently. The former members of the U.S.-administered Trust Territory of the Pacific Islands, which included Palau, the Federated States of Micronesia, and the Marshall Islands, chose not to issue their own currency after becoming independent, having all used the U.S. dollar since 1944. Two British dependencies also use the U.S. dollar: the British Virgin Islands (1959) and Turks and Caicos Islands (1973). The islands Bonaire, Sint Eustatius and Saba adopted the dollar on January 1, 2011, as a result of the dissolution of the Netherlands Antilles.
(in Nicaragua, USD’s are freely used alongside Cordobas)
Some countries that have adopted the U.S. dollar issue their own coins: See Ecuadorian centavo coins, Panamanian Balboa and East Timor centavo coins.
Some other countries link their currency to U.S. dollar at a fixed exchange rate. The local currencies of Bermuda and the Bahamas can be freely exchanged at a 1:1 ratio for USD. Argentina used a fixed 1:1 exchange rate between the Argentine peso and the U.S. dollar from 1991 until 2002. The currencies of Barbados and Belize are similarly convertible at an approximate 2:1 ratio. The Netherlands Antillean guilder (and its successor the Caribbean guilder) as well as the Aruban florin are pegged to the dollar at a fixed rate of 1:1.79. In Lebanon, one dollar is equal to 1500 Lebanese pound, and is used interchangeably with local currency as de facto legal tender. The exchange rate between the Hong Kong dollar and the United States dollar has also been linked since 1983 at HK$7.8/USD, and pataca of Macau, pegged to Hong Kong dollar at MOP1.03/HKD, indirectly linked to the U.S. dollar at roughly MOP8/USD. Several oil-producing Arab countries on the Persian Gulf, including Saudi Arabia, peg their currencies to the dollar, since the dollar is the currency used in the international oil trade.
The People’s Republic of China’s renminbi was informally and controversially pegged to the dollar in the mid-1990s at ¥ 8.28/USD. Likewise, Malaysia pegged its ringgit at RM3.8/USD in 1997. On July 21, 2005, both countries removed their pegs and adopted managed floats against a basket of currencies. Kuwait did likewise on May 20, 2007,[10] and Syria did likewise in July 2007.[11] However, after three years of slow appreciation, the Chinese yuan has been de facto re-pegged to the dollar since July 2008 at a value of ¥6.83/USD; although no official announcement had been made, the yuan has remained around that value within a narrow band since then, similar to the Hong Kong dollar.
robertinget on Sat, 4th Jan 2014 10:10 pm
The Fed has been trying to inflate by
pumping up the money supply. This is the only way we can gain advantage to improve exports. The problem? There is currently a battle to the bottom. EVERY industrialised nation is doing the same.
It so happens, for the time being at least, WE WIN! Why? If I say the word
“fracing” (not fracking) will you stop reading? Because our currency is the LEAST mangy dog in the kennel WE WIN!
Because our GAS is the cheapest in the
developed world, WE WIN! Because WTI is cheaper (than Brent) WE WIN!
Because most ground breaking (pun) tech
comes out of the US, WE WIN!
Because we are marginally less corrupt.
Because we did not elect Romney.
Because we allow a state to sell pot.
Because we don’t put gays in prison for being born different.
Because American women can still decide.
Because Arthur can speak freely W/O being slapped in prison.