Inflation is here in many ways. For example, cringe-worthy gas prices may make you rethink last year’s pickup truck purchase. However, it’s not the only thing affecting the value of cash in your wallet. The Federal Reserve’s preferred inflation gauge hit 4.4% in September. That’s a Highest point at 30 years, well above the U.S. central bank’s preferred target of 2%.
Although consumers know that inflation is causing prices to rise due to classic inflation, there are other types of inflation which could cause things to get worse. “Skimpflation,” coined by NPR’s Greg RolsalskyThis could lead to inflation that is worse than what government statistics show. Moreover, Rolsalsky claims that many argue that the government does not properly account for such inflation in official statistics.
How does the quality of goods and services affect inflation
Alan Cole, an ex-Senior Economist for Congress, believed that annual inflation percentages issued by the government are not as low due to wide increases in the quality and quantity of goods. High-quality services are able to counteract the inflation rate. Cole says it is like when you had to buy a single CD or record for a lot of money. You can now access almost every piece of music published at very affordable rates.
Cole discovered something interesting about the current inflation rate while on a recent Vermont vacation. Cole felt skimpflation every morning he awoke from breakfast at a hotel offering a continental buffet breakfast. Alan had a wide variety of options to choose from instead of Cole. It was an a “sad and pitiful” breakfast. He noticed that it included a “plastic-wrapped, mass-produced pastry, prepackaged Raisin Bran, and lukewarm milk.”Also, maid services were reduced.
What is Skimpflation?
Inflation has been easy to spot in recent months. Classic inflation is when a product’s price rises, as in the case of gasoline and groceries that have steadily risen over the last few months. The skyrocketing costs and the increasing delays can be attributed to labor shortages and supply-chain problems. To stay afloat, however, the economy is resorting to sneaky inflation.
NPR’sGreg RolsalskyThis phenomenon is being called skimpflation. Rolsalsky explains what skimpflation is “when, instead of simply raising prices, companies skimp on the goods and services they provide.”Although the cost of these services has remained the same, the quality of their services is rapidly decreasing.
Skimpflation is everywhere
Companies are trying to keep their businesses afloat amid rising costs associated with pandemic-related expenses. Skimpflation could be the answer for businesses that cannot find workers during the recovery from the pandemic.
You can find many examples. Sometimes it’s due to shareholders being happy. Disney has been criticized recently for cutting corners on its services and charging guests the same price at the gate. During the pandemic Disney removed the tram system which transported people from parking lots. The tramsWill remain inactive “for the foreseeable future,”To enter the park, guests will have to walk nearly a mile. Disney also discontinued the Fast Pass system which was once free and replaced it by a pay to ride pass. While doing so, the day ticket price didn’t drop.
Many small businesses also have been affected by the pandemic and are struggling to keep their doors closed. Many times, consumers may have to pay less.
Have you ever experienced skimpflation?
Skimpflation can have some unpleasant side effects. Are you experiencing longer shipping times, longer lines at grocery stores, and longer hold times when contacting customer service? All of these could be related to skimpflation if employers don’t have the capital to pay what potential employees are demanding.
Companies are choosing to reduce the quality of services, regardless of the root cause, whether it’s to increase profits or to avoid paying.
So, what does all this mean? Instead of like before, where the quality of services counteracted inflation, the declining quality of services are now amplifying inflation’s cumbersome effects on our wallets. In the current state of affairs, both rising costs and lower quality services are the norm.
Skimpflation might be here to stay, at least for the moment. It may be worth adjusting your budget to account for the higher cost of goods and the lower quality of services. Whether it’s inflation itself or other factors such as skimpflation, Cole reminds us “We’re getting less for our money, and that’s fundamentally what inflation is all about.”