This year has been an expensive one. We’re barely halfway through the calendar, but inflation is kicking most of us in the ass. The consumer index price rose 9.1% in June 2022 when compared to a year prior, and we’re seeing impacts that are pretty much unavoidable at this point.
In some cases, companies need to raise costs to stay afloat, but that’s not always the case. Many companies see inflation as an opportunity to increase prices and profits, and as sticker shock becomes a daily occurrence, we need to wonder if companies are just trying to squeeze more money out of its customers.
Despite these costs, demand remains in most sectors. So companies know they can push prices up because the customers aren’t leaving. Or, they’ll use some deceptive tactics to shrink their production costs while lowering the value to the customer. Regardless, inflation is just one piece of the puzzle. The other piece: corporate greed.
So, What’s Up With Prices?
The past two years have been a wild ride. Some people lost jobs and money, but Americans also got stimulus checks, because we need to feed our economy. Savings accounts had seriously low interest rates to discourage savings and encourage people to spend.
Well, it worked, and a lot of Americans demanded products. This is part of the reason we’re not in a recession. The economy isn’t slowing, and the demand for goods and services has kept unemployment low, so the price of goods and services can rise faster than the cost of producing them.
According to the U.S. Bureau of Economics Analysis, corporate profits in the country rose at a staggering rate in 2021, amounting to $3.196 trillion in the first quarter of 2022, so it shouldn’t be too surprising that nearly two-thirds of publicly traded companies are reporting greater profit margins than they did prior to the pandemic.
So why do prices keep going up? Because people will keep buying. Almost all industries have felt the impacts of inflation, but for every item a consumer omits from their life, they need to buy a different one.
One industry with fattening profits: meat. Tyson saw shares hit an all-time high in the final quarter of 2021. Post-pandemic, people are opting for in-home dining instead of eating out, and the company is confident it can increase the costs of its products… and then some. Despite the higher costs for animal care and shipping, the company’s net income exceeded expectations, and will likely creep higher.
Does Inflation Impact Everything?
When companies see an opportunity to jack up prices, they usually take it. So, as everyone complains about prices increasing, it can be seen as a an excuse to inch price tags up. But during this period, one unlikely hero emerged from the back corner of your gas station convenience store: AriZona, the iced tea company.
A tweet displaying a $1.29 can of iced tea (30 cents above the standard 99-cent can) went viral on Twitter, and the company promptly responded to confirm the price of a can was staying at 99 cents (or $1.29 in Canada, where the alternate can originated). And it’s been that price for over three decades.
And yes, the company has been impacted by inflation; high fructose corn syrup prices have risen by 300% over the past 20 years. So the company adapted where it could, avoiding unnecessary marketing costs and using recycled aluminum. They were prepared for changing costs, and they didn’t want to pass the burden to the customer.
Not every company sells iced tea, and some costs really do warrant an increase. But, you need to wonder how AriZona can avoid raising prices for three decades, while Starbucks has increased costs multiple times in the past two years alone.
Many companies are confident customers will stick around when prices go up. In other cases, companies would rather keep their price point, but they need to save on costs somewhere; and they’re not as savvy as AriZona. So, inflation gets replaced with shrinkflation.
Shrinkflation — The Hidden Cost
Sometimes, you head to the store and something doesn’t feel right. The item you want is there, the packaging looks the same, but a few corners have been cut, literally. This is a case of “shrinkflation,” when the size or quantity of a consumable product is reduced to save money for a company.
At its core, shrinkflation exists to preserve the cost of products, and for some, this may be preferable to paying more. Still, this never sits well with customers. After all, you’re receiving less and paying the same cost. And you know there are only one of two future outcomes: The product shrinks further or the price inevitably goes up.
Companies seldom announce the changes to their packaging and quantities as it relates to shrinkflation. The phenomenon has become wildly accepted at this point, but the changes still sting and can be viewed as deceptive.
If your gut is telling you a product’s price could rise, but it hasn’t yet, you might want to check the small details. The number of ounces in a bottle, sheets on a roll, or servings in the box may have gone down. And until the reality of shrinkflation hits you in the face, you might be blind to the fact that that “deal” you’re getting isn’t so good.
So What Can We Do?
We’re unlikely to stop hearing about inflation any time soon and corporate profits are still rising, but the rate is slowing. Between Q1 and Q2 in 2021, the increase was about 13.1%, while it was only 2.9% between the same quarters in 2022.
In many cases, it seems like we’re in a position where price hikes aren’t slowing demand, at least not enough to deter companies from raising them higher. So, this might be a good time to look for local businesses to support rather than bigger chains. Of course, this is much easier said than done, but prices will keep going up until customers take their business elsewhere.
You can also change the numbers you look at. When shopping, particularly for consumables, look at the unit price. This will let you know when the quantity in the package is shrinking, even if the purchase price is not.
And now, interest rates are going up. So, it might not be the best time to take out a new mortgage or collect credit card debt. But if you can afford to save money, that money in the bank will collect more interest. In fact, high yield savings accounts could hit a 2% APY by the end of the year, when that number was around 0.02% last year.
Ultimately, you’ll vote with your money. It can seem like everything is starting to cost more, and it’s not an illusion. Prices are continuously climbing, and most companies won’t hesitate to pass the increase on to their customers. Then, they take advantage of the situation even further and will continue to do so until the demand decreases. So, customers can choose to pay the price of inflation or save their money until they’re willing to pay for the goods they really need.
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