Stealthflation

In April 2012 Chris Becker highlighted product debasement in a short post titled ‘Stealthflation.’

Stealthflation is hidden price inflation when instead of raising a product’s nominal price, manufacturers cut product sizes or reduce product quality. Stealthflation is rampant in South Africa as companies try to push price increases on to consumers without consumers knowing it. It is a classic sign of the erosion of business margins and real profitability bought about by monetary debasement and inflation at a time when consumers are hard-pressed to pay higher prices.

I wrote about this exact issue in March on www.mises.co.za in an article titled, The Economics of Horsemeat,

“We can see that debasement is in fact the process of inflation.

Customers don’t like higher prices. It’s easier for merchants to disguise price inflation by lowering quality before raising price. It’s less easy to see, but product debasement is also inflation. When money is debased, it stands to reason that the goods and services against which money is traded must become debased too.

This is what our horse beef merchants are doing today, and what Anheuser-Busch is accused of. We should not be surprised by these modern day debasements. Governments and central banks continue to steal the value of the money through a process of debasement. Instead of printing money by melting down and diluting the coinage, these days they just create it at no or low cost on a computer or printing press.

As the age of inflation intensifies, expect more and more products to become heavily debased as merchants try to delay the inevitable price increases by diluting quality. This is why the Coke can was surreptitiously reduced from 340ml to 330ml, why kids toys break so easily, why your clothes don’t last as long, and why food is getting filled with cheap and nasty ingredients.”

Read the full article here.

Stealthflation is increadibly surreptitious. In fact when it comes to quality debasement it is practically impossible for the ordinary person to detect. You’re getting poorer and you don’t even realise it. Reduced pack sizes are easier to detect, but not that easy. How many people really picked up on Coke dropping their can size from 340ml to 330ml in 2008?

Take a look at this example of stealthflation from Procter & Gamble, in their famous nappy brand Pampers. My astute wife, who used to work in FMCG research, spotted how P&G are slowly but surely dropping their Jumbo Pack size.

Stealthflation

My wife says this pack used to be 76 nappies strong 2 years ago, so that’s about a 12% stealthflation over two years, excluding any actual price increases.

Whether the government stats bureau has the capacity to pick up on this kind of stealthflation we may never know. Stats SA claims it accounts for falling pack sizes, but stealthy moves like this one from P&G could fly under the radar. What is certain is that quality debasement is not counted by Stats SA, and this is considerable source of stealthflation going unreported. It only adds to the growing body of evidence that suggests official inflation statistics through certain periods of time under-report actual loss of purchasing power of the currency.

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About Russell Lamberti

Russell Lamberti is a regular contributor to Mises SA. He is Chief Strategist at ETM Analytics, an Austrian-influenced economic research firm based in Johannesburg. Although he wrties about many topics, you'll most often find him slaying patent and copyright law and exposing the biggest bubble in history: fractional reserve banking.
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