Recent government reports on prices at both the producer and consumer levels have shown sharp increases of late, worrying many consumers that a bout of nasty inflation may be on the way.
What if significant inflation has been occurring for years, but we just haven’t noticed? Just because the price of a particular item hasn’t gone up doesn’t mean it hasn’t been affected by inflation.
For example, a lot of the consumer products that used to be made in the U.S. are now made overseas. But consumers can go to discount stores and buy them for the same price they’ve always paid. No inflation, right?
Not the same
Well, what if it’s not exactly the same product?
For example, imagine an ordinary product that consumers have been purchasing for decades. Consumers have always paid around $20 for it, and valued it for its reputation for quality and durability.
But if the company that is making the product kept making it the same way it always had, it would now have to charge $45 for the item. It would still be the same, high-quality item, but consumers might not buy as many at the higher, “inflated” price.
Looks the same, but it’s not
So the company, sometime in the 1990s, started making the product in China, using cheaper labor, materials and design. As a result, it has a product it can still sell for around $20, even though it is nowhere near the original in terms of quality.
The consumer buying the product doesn’t realize, or think about, the change in production. She thinks she is buying the same high quality product she always has, and is furious when the product is revealed to be a cheap imitation of what she expects. It’s a recurring theme in complaints to ConsumerAffairs.com.
If $20 doesn’t buy the quality it once did, isn’t that inflation too?
Hope you’re not hungry
The New York Times notes that food manufacturers have been engaging in a little stealth inflation of their own lately, especially now that raw food costs have begun to escalate. In order to keep prices the same, they have begun packaging a little less food in the package, while keeping the container roughly the same size.
“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, told the Times.
He says companies try to do it in a way that doesn’t call attention to the fact that there’s less product in the container.
In fairness, the company is in a tough position. Its costs are rising but it’s afraid to raise prices to reflect economic realities. To do so might hurt sales, so the alternative is to sell the consumer something less, and hope she doesn’t notice.
Eventually, however, she almost always does.