Official inflation figures don’t tell the whole inflation story because they don’t count “contractual inflation” that fools consumers out of the cash register.
As inflation becomes a part of life, it takes two forms. One of them is traditional official price inflation, in which a fixed “basket” price of goods and services becomes more expensive over time.
It is currently operating at a rate of over 8% per year.
Another type of inflation is contraction inflation, in which the prices of baskets of goods and services remain the same over time, but the items they contain become smaller. Price is what you actually get, not what you pay.
Brett Rose, CEO of United National Consumer Suppliers, described how contractual inflation is often used as an alternative to price increases in response to market inflation or due to rising production costs.
“Consumers will know when a brand raises a price,” Rose told International Business Times, “but shrinking inflation is usually less obvious because it involves shrinking packaging and products.” “This means that everyday products are reduced in size, quantity or quality while the price remains the same.”
Contractile inflation often reflects how suppliers deal with rising production costs.
Tenpao Lee, professor of economics at Niagara University, told IBT: “For example, a supplier sold orange juice for $1.99 in a 64-ounce box. Due to inflation, the supplier reduced the container to 59 ounces for the same price. For that reason, we reduced toothpicks from 100 to 60, light bulbs from 4 to 2, and toilet paper from 6 to 4 per pack.”
Shrink expansion is not limited to changing the packaging function of a product. It extends to changing quality features.
“Laptop computers can sell for the same price for speed, memory, or limited software versions,” Lee said. Vendors may also charge extra for items that were part of the product package. In other words, there will be no free items that came with the original purchase. For example, if you are buying a new car, floor mats are not. It’s no longer free. Buy furniture and delivery is not free.”
Obviously, producers of these products and services are trying to fool the emotional brains of consumers who hate to lose. At the point of purchase, most consumers will not realize that they are getting less for the same price.
“Inflation reduction can create the illusion that consumers want to alleviate the pain of inflation,” Lee said.
The problem is that this strategy can backfire on the companies that pursue it, once the consumer’s rational brain makes a decision.
CEO Lee said, “In particular, smart and reasonable consumers who have become accustomed to giving bulk discounts at wholesale prices can find out by comparing unit prices.”
“On the other hand, suppliers that apply this strategy run the risk of losing customers, and changes to the production process for new sizes and labels can incur additional costs with minimal savings. Therefore, a reputable supplier can use this strategy Care should be taken when adopting
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