Posts Tagged ‘inflation’
“Americans are getting stronger. Twenty years ago, it took two people to carry ten dollars’ worth of groceries. Today, a five-year-old can do it.”*…
Scheduling note: the press of travel and obligation will make it impossible for your correspondent to post for the next few days; regular service should resume on or about Friday the 11th…
Rising prices prompted many consumers to shift to lower-cost goods from premium brands. However, as Ana Elena Azpúrua reports, an analysis of millions of products by Alberto Cavallo shows how inflation hit budget products harder in many countries, a phenomenon called “cheapflation”…
Surging inflation drove many consumers to cheaper brands or lower-quality products, but new data suggests that switching might not have saved them as much as they might have expected.
During the most recent period of high inflation, prices of the least expensive products increased more than those of the costliest, according to an analysis of microdata from large retailers by Harvard Business School Professor Alberto Cavallo. In a forthcoming article in the Journal of Monetary Economics, Cavallo and coauthor Oleksiy Kryvtsov, senior research officer at the Bank of Canada, refer to this phenomenon as “cheapflation.”
In the United States, the prices of the cheapest food products climbed 30 percent between January 2020 and May 2024, outpacing the 22 percent increase of the fanciest foods.
Kryvtsov and Cavallo, the Thomas S. Murphy Professor of Business Administration, analyzed millions of products from more than 90 big retailers in 10 countries, including detailed price data for products within the same categories, something that’s been difficult to study. After creating indexes tied to pre-pandemic prices, the researchers concluded that “cheapflation” isn’t unique to the US…
… The price gap between cheap and expensive goods widened most as inflation was peaking, but the spread remained even as prices stabilized, eating away consumers’ potential savings.
“Prices for cheaper brands grew between 1.3 and 1.9 times faster than the prices of more expensive brands, and only when inflation surged, not before or after,” the researchers write.
Why? Cavallo and Kryvtsov find evidence of an increase in the relative demand for cheaper products, as consumers shifted their spending from high to low-priced varieties in an attempt to lower their grocery bills. They also point out other reasons, including targeted fiscal stimulus, which likely increased the demand for cheaper varieties, and the possibility that cheaper products tend to depend more on global supply chains, like the ones disrupted by COVID-19. At the same time, the profit margins of cheaper goods could be tighter than those of makers of high-priced goods from the same category, adding pressure to raise prices as supply costs increased.
But when inflation decreased, “the relative prices of cheaper options remained permanently higher, even though the inflation inequality abated. This may help explain why some consumers may think that prices are ‘too high’: not just relative to the past, but also relative to more expensive varieties,” the authors write…
One reason we’re feeling the pinch: “Charting ‘Cheapflation’: How Budget Brands Got So Pricey,” @anaeazpurua on @albertocavallo in @HBSWK.
* Henny Youngman
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As we scrimp, we might send developed birthday greetings to Jakaya Kikwete; he was born on this date in 1950. And economist and politician, he served as finance minister then President of Tanzania. Kikwete was instrumental in the political and economic reforms that have led to Tanzania being called “a success story” and served as chairperson of the African Union (in 2008–2009) and the chairman of the Southern African Development Community Troika on Peace, Defence and Security (in 2012–2013).
Since stepping down as President in 1915, Kikwete served as the African Union High Representative in Libya and as a member of the UN’s Lead Group of the Scaling Up Nutrition Movement. Since 2022, he has been a co-chairing the Commission for Universal Health convened by Chatham House, alongside Helen Clark.
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair”*…
… or inflation is when you get less for the old price. Mark Dent on America’s most egregious case of shrinkflation– an investigation he began with a purchase from eBay…
… It’s everything I hoped for: a factory-sealed four-pack of regular Charmin Ultra toilet paper produced in 1992.
I look at the fine print and gasp…170 sheets per roll!
These days, a regular Charmin Ultra Soft roll, if you can find one, has 56 sheets. Even the roll they market as “Double” doesn’t have 170 sheets — it has 154. And the 1992 rolls are hardly the largest — the back of the package includes a note from parent company Procter & Gamble explaining these rolls have fewer sheets than a previous version.
Toilet paper is shrinkflation at its absolute worst. Imagine if Chipotle spent decades reducing the size of its burritos until they looked like tacos.
How far does the downsizing go? And why has the industry managed to make its products so small with barely any scrutiny?… I called Edgar Dworsky to help unroll the mystery of toilet paper shrinkage.
Dworsky, a Massachusetts-based consumer advocate who runs the consumer education websites Mouse Print* and Consumer World, is perhaps the only person in the US who reads the fine print, and he’s certainly the only one who’s consistently tracked changes to the sizes of products like cereal, snack chips, frozen pizza, and coffee mix, becoming the go-to shrinkflation source. As companies sought to avoid price hikes during the last couple of years and opted for shrinkflation, Dworsky’s decades-long work was profiled by the New York Times and praised by John Oliver.
When it comes to downsizing products, Dworsky tells me that toilet paper, along with paper towels, “probably come in first place.” And my 1992 toilet paper is just the tip of the iceberg…
[Dworsky helps Dent (and us) understand just how far shrinkflation has gone (e.g., a regular Charmin roll, 56 sheets today, had 650 sheets in 1974), why (the full range of) manufacturers are acting so aggressively (spoiler alert: it’s garden-variety greed, but also other forms of self-interest), and how they market less-for-more…]
… While it may seem deceptive to shrink toilet paper with little notice aside from the fine print — and to compare “Mega” and “Double” rolls to basically nonexistent products — it’s not against the law. Companies can shrink their product and charge the same amount, or more, while doing nothing to warn consumers aside from updating the fine print.
The new publicity around shrinkflation has at least caught the attention of legislators. Two new shrinkflation bills have been introduced this year. One would give the FTC power to punish shrinkflation and another would force companies to notify consumers when they shrink products while keeping the price the same. France enacted a similar law a few months ago.
Absent new protections, though, toilet paper will keep getting smaller and rebranded with deceptively larger names that actually contain less product. “There is no end,” Dworsky says.
He’s already spotted Charmin’s latest stunt: The company has swapped out “Super Mega” rolls for “Mega XL,” a rebrand with the same number of sheets. Dworsky suspects Charmin fears running out of descriptors and wants to save the mother of all superlatives, “Super Mega,” for the next time its shrinkage has gone too far.
“I mean, seriously, what can you do to Super Mega? Become Super Super Mega? Super Mega Plus?” he says.
The toilet paper companies will find a way. They always do…
“Why toilet paper keeps getting smaller and smaller,” from @mdent05 in @TheHustle.
* Sam Ewing
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As we compare, we might send carefully-calculated birthday greetings to two important economists, both born on this date in 1954:
Katharine G. Abraham, a professor at the University of Maryland, served as the commissioner of the Bureau of Labor Statistics from 1993–2001 and a member of the Council of Economic Advisers from 2011–2013. She laid the groundwork for the American Time Use Survey, and (germanely to the piece above) testified repeatedly before Congress on the shortcomings of existing methodology of the Consumer Price Index in the 1990s (and the necessity of making revisions based on objective research) and expanded coverage of the prices of services in the Producer Price Index.
Sanjiv M. Ravi Kanbur, T.H. Lee Professor of World Affairs, International Professor of Applied Economics, and Professor of Economics at Cornell University. worked for the World Bank for almost two decades and was the director of the World Development Report. In May 2000, Kanbur resigned as director and lead author of the World Development Report, following the publication of the initial draft of the 2000/2001 report on the internet. Kanbur’s resignation came a year after the resignation of the World Bank’s senior vice-president and chief economist, Joseph Stiglitz…
Kanbur’s initial draft argued that, “anti-poverty strategies must emphasise ’empowerment’ (increasing poor people’s capacity to influence state institutions and social norms) and security (minimising the consequences of economic shocks for the poorest) as well as opportunity (access to assets).” The final version of the report still contained the three central pillars of: (a) empowerment, (b) security and (c) opportunity, however the order was changed to (a) opportunity (with emphasis given to market-driven economic growth and liberalisation as ways of reducing poverty), (b) empowerment and, (c) security. The World Bank denied that US treasury secretary Larry Summers or anyone else had influenced the report to make it less radical…. (source)
“Economic problems have no sharp edges. They shade off imperceptibly into politics, sociology, and ethics. Indeed, it is hardly an exaggeration to say that the ultimate answer to every economic problem lies in some other field.”*…
The number of households that live above the poverty line but are barely scraping by is ticking higher…
Over time, higher costs and sluggish wage growth have left more Americans financially vulnerable, with many known as “ALICEs.”
Nearly 40 million families, or 29% of the population, fall in the category of ALICE — Asset Limited, Income Constrained, Employed — according to United Way’s United for ALICE program, which first coined the term to refer to households earning above the poverty line but less than what’s needed to get by.
That figure doesn’t include the 37.9 million Americans [individuals, as opposed to families as measured above] who live in poverty, comprising 11.5% of the total population, according to data from the U.S. Census Bureau.
“ALICE is the nation’s child-care workers, home health aides and cashiers heralded during the pandemic — those working low-wage jobs, with little or no savings and one emergency from poverty,” said Stephanie Hoopes, national director at United for ALICE…
Read on for an explanation of how high inflation and higher interest rates have aggravated what was already a problem: “29% of households have jobs but struggle to cover basic needs,” from @CNBC.
Apposite: “Millions of Americans are about to lose internet access, and Congress is to blame.”
(Image above: source)
***
As we knit a safety net, we might recall that, on this date in 2020, as a product of the COVID-19 recession, the U.S. unemployment rate to hit 14.9 percent, its worst rate since the Great Depression. Federal legislators enacted six major bills, centered on the American Rescue Plan and costing about $5.3 trillion, to help manage the pandemic and mitigate the economic burden on families and businesses. Those programs have now expired.
“What people these days call ‘Vibes’ is a smell, a taste of the soul”*…
Up? Down? Better? Worse? What’s actually going on in our economy? Noah Smith on the asymmetric warfare going on around that question…
As we gear up for election season, a big debate is whether the U.S. economy is doing well or not. Biden supporters point to extremely low unemployment, falling inflation, and real wages that have started rising again. Biden opponents — including both conservatives and socialists — contend that the inflation of 2021-22 left such a severe scar on Americans’ pocketbooks that low consumer confidence is perfectly justified. Biden supporters counter that since inflation has come down — and was never as severe as in the 1970s — the anger over the economy is just “vibes”.
Basically, the Biden supporters are right; the U.S. economy is truly excellent right now. Inflation looks beat, everyone has a job, incomes and wealth are rising, and so on. But on the other hand, I can’t command people to simply stop being mad about the inflation that reduced their purchasing power back in 2021-22. People care about what they care about.
At the same time, though, I think it’s possible for negative narratives about the economy to take hold among the general populace and distort people’s understanding of what’s actually going on. For example, John Burn-Murdoch of the Financial Times recently found [gift article] that consumer sentiment closely tracks real economic indicators in other countries, but has diverged in America since 2020:
Now this could be because Americans simply care about different things than Europeans; we might simply have started to really really hate interest rates since 2021, while Europeans didn’t. But a simpler explanation is that Americans’ negative sentiment is due to something other than economic indicators. And it’s possible that that “something” is a negative narrative — i.e., vibes…
“Vibes vs. data”
Indeed, as Burn-Murdoch observes in his analysis…
… It seems US consumer sentiment is becoming the latest victim of expressive responding, where people give incorrect answers to questions to signal wider tribal political or social affiliations. My advice: if you want to know what Americans really think of economic conditions, look at their spending patterns. Unlike cautious Europeans, US consumers are back on the pre-pandemic trendline and buying more stuff than ever…
“Should we believe Americans when they say the economy is bad?” (gift article)
But why? Jonathan Kirshner‘s review of Martin Wolf‘s important book The Crisis of Democratic Capitalism, suggest an unsettling answer…
The Crisis of Democratic Capitalism is an essential read for its articulation of the perilous crossroads at which the future of enlightened liberal civilization now stands. Wolf argues persuasively that, for all their visible flaws and imperfections, competitive market capitalism and liberal democracy are the best bad systems available for organizing human societies. And each requires the other to thrive—“[b]ut this marriage between those complementary opposites […] is always fragile.” Capitalism has been allowed to run amok, and it has elicited a backlash that threatens democracy…
Wolf’s central argument is that capitalism and democracy are inherently interdependent, yet also often in tension with one another—and managing the balance of that indispensable relationship is akin to walking a tightrope. In traditional autocracies, the economy has been captured by those that control the state, and that control is the basis of their power (which is why they are so reluctant to let go of the reins of authority). Liberal democracies today face the inverse problem: the capture of the state by those that control the economy. This is plutocracy, and aside from the injustice it visits on societies, it is also profoundly dangerous, because in democratic plutocracies (like the United States today), the simmering frustrations of mass polities will at some point lead to the voluntary election of an autocrat: “[I]nsecurity and fear are gateways to tyranny.” Decades of stagnant incomes, rising inequality, and the erosion of high-quality jobs for the middle class and the less-educated have allowed the relationship between capitalism and democracy to become dangerously unbalanced. The Crisis of Democratic Capitalism argues that the fault lies with the failure of public policy to tame the excesses of capitalism; it warns that those excesses will unleash the forces that destroy democracy.
Economic inequality, on the rise for 50 years, has soared to ever greater extremes in recent decades. As Wolf reports, from 1993 to 2015, the real income of the top 1 percent of the population in the United States nearly doubled; for everybody else, over those same years, aggregate real income grew by 14 percent. More pointedly, as the very rich got much, much richer from 2005 to 2014, 81 percent of US households had flat or falling real income—a weighty reminder that we continue to live in a world defined by the Global Financial Crisis and its aftermath…
… the financialization of the economy, especially after the 1990s, and the fortunes amassed from that process, were part and parcel of a larger shift towards “rigged capitalism”—the emergence of which The Crisis of Democratic Capitalism places at the heart of the matter. In a remarkable (and laudable) intellectual evolution, Wolf, who welcomed and celebrated the Thatcher revolution in Britain, and not so long ago penned the book Why Globalization Works (2004), now attributes the crisis of our time to “what Adam Smith warned us against—the tendency of the powerful to rig the economic and political systems against the rest of society.” Superseding a well-ordered market society, rigged capitalism—a toxic brew of developments and practices including financialization, winner-take-all markets, reduced competition, increased rent-seeking behavior (the use of concentrated economic power to extract monopoly profits), tax avoidance and evasion, and the erosion of ethical standards—has led to a widespread loss of confidence in the legitimacy of democracy…
These pathologies run deep, and well below the headlines. The use of political power to undermine competition—which must thrive at the heart of any capitalist society—is an endemic attribute of rigged capitalism. (And it is why we pay higher prices for most things than a “free market” would levy.) Many if not most giant corporations are now monopolies or near-monopolies, a situation that, as any card-carrying professional economist of even the most conservative stripe would agree, generates inefficiencies, rent-seeking behavior, and outright exploitation. Many markets have become shielded, protections reinforced by access to the corridors of power, with wealth extracted from consumers (and workers) in consequence: consider the atrocity of unskilled workers in fast food restaurants being forced to sign “non-compete” clauses, an act of collusive wage suppression.
Rigged capitalism—which yields massive concentrations of wealth for a sliver of largely-above-the-law plutocrats, combined with stagnation and declining opportunities for the majority—leads to a basic political problem: “How, after all, does a political party dedicated to the material interests of the top 0.1 percent of the income distribution win and hold power in a universal suffrage democracy? The answer is pluto-populism.” This is where race, identity politics, and the culture wars come into play. The century-long political hammerlock held by the Democratic Party on the Old South was based on voter suppression and other devices that guaranteed, for working-class whites, greater economic opportunity, access to the legal system, and higher social status than Blacks, in exchange for their political support. Bob Dylan, at 22 years old, saw through this in his song “Only a Pawn in Their Game” (1964)—and nearly 60 years later, that game hasn’t changed much…
rigged capitalism will nevertheless unleash forces not easily contained—and render liberal democracy unsustainable. As political scientist Rawi Abdelal has argued, “the social fact of unfairness is more important than the material fact of income and wealth distribution.” Endemic corruption, arbitrariness of justice, and fear for future prospects are poisonous to the body politic, undermining shared perceptions of the legitimacy of democratic society. In such settings, past and present, fear, despair, and frustration create the space for charismatic personalist authoritarians peddling promises of deliverance but who, once in power, consolidate their hold on the state by undermining the institutional constraints on their authority. And so, democracy dies from within.
What is bewildering about the American case is not that it has witnessed the rise of a leader who, as Wolf describes, “not only had no idea what a liberal democracy was but despised the idea,” and who was “instinctively authoritarian”—this, after all, is what pluto-populism conjures. What remains bizarre, however, is that, of all the possible choices, a hedonistic, ethically suspect, narcissistic grifter—who for decades was a signature beneficiary of rigged capitalism—would emerge as the people’s choice. Yet Donald Trump, like the gargantuan Stay-Puft Marshmallow Man from Ghostbusters, has been summoned by a collective subconscious rage to act as a malevolent score-settling agent of destruction…
“Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s ‘The Crisis of Democratic Capitalism’”
All three articles– and Wolf’s book– are eminently worth reading in full.
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As we ponder populism, we might recall that it was on this date in 1865 that the 27th state (Georgia) ratified the 13th Amendment to the U.S. Constitution, abolishing slavery and involuntary servitude (except as punishment for a crime). Proclaimed on December 18, it was the first of the three Reconstruction Amendments adopted following the American Civil War.
The Emancipation Proclamation (made in September 1862; effective January 1, 1863) had freed all current slaves in the U.S. (though as a practical matter freedom took years longer). The Thirteenth Amendment assured that it would never be reinstated.
“As people who deal with the ocean you must see the irony. We are facing a shortage on a planet whose surface is covered two-thirds with water.”*…
The Panama Canal has become a vital link in the web of global trade, especially that trade that connects Asia and the U.S. U.S. commodity export and import containers account for 73% of Panama Canal traffic, representing about $270 billion in cargo. That trade is now constrained, as water shortage has reduced the Canal’s throughput…
For months, the global shipping community has been closely watching the Panama Canal, as a severe drought has threatened water levels and forced the Panama Canal Authority to enact restrictions on the maximum weight and size of vessels that can transit its waters. The impact of the Panama Canal Authority’s restrictions has been negligible, as lower shipping demand offset any vessel weight restrictions–until now…
It takes almost 200 million gallons of water for every ship to transit the Panama Canal. And, in a drought, that’s become a problem. The Panama Canal operates with a lock system that is fed via freshwater drawn from Lake Gatun. The water flows from the lake, the high point of the canal, down through the lock system and is then discharged to sea. While the canal’s newer locks can recycle about 60% of its water, it still requires a tremendous amount of water for every ship to pass through.
At this time of year, the lake’s average water level should be around 87 feet, but the lake currently sits at 81.8 feet and is forecasted to remain at or near that level through January. To make matters worse, the lake is only receiving 70% of the intake it needs (largely from rain) to satisfy the canal’s water usage.
To combat this, about a year ago the Panama Canal Authority began limiting the draft of vessels (the distance between the waterline and the deepest point of the boat) that are using the canal. The current draft limit is 44 feet (from a normal 50 feet). A lot of factors influence the draft of a vessel but the number one factor which can be controlled most readily is the vessel’s weight. For every one foot of draft reduction, a container ship has to reduce its weight by the equivalent of 300-400 TEU (at 14 tonnes of cargo). Therefore a six-foot reduction in draft equates to 1800-2400 TEU of reduction in vessel capacity.
As the reduction in vessel draft proved to not be enough to manage Lake Gatun water levels, the Canal Authority began to limit the daily transits of vessels. The canal normally sees 34 planned transits per day. This has been reduced to 24 transits and is forecast to reduce to 18 by February 1, 2024…
“What You Need To Know About the Impact of the Panama Canal on Global Logistics”
Consequently, shipping companies are faced with a thorny choice: They can risk waiting for days, pay a big fee to jump the line (currently running at $4-4.5 million per passage), or avoid the canal entirely by taking a longer route… any of which increase the cost of transit– a cost that likely to show up in prices…
… Shipping companies are set to incur heavy losses due to the bottleneck. Maersk, which is the second-largest shipping company in the world, said it was working to ensure the backlog did not disrupt its deliveries. “We follow the guidance from the Panama Canal and adapt our intake on relevant services in advance of the departure at origin. Maersk remains committed to minimizing disruptions to our operations,” it said in a press release. The Danish company moves more than four million TEU (Twenty Foot Equivalent Unit) vessels every year. In 2021, it saw its revenues reach $62 billion. Maersk added that the low water levels in the Panama Canal were a stark reminder of the climate crisis, and its ripple effect on global supply chains.
There is still no estimate of how much the Panama Canal jam will cost shipping companies, but the situation is a reminder of the 2021 crisis in the Suez Canal in Egypt. In that case, shipping companies suffered multi-billion dollar losses when the Ever Given container ship got stuck and blocked access to the canal…
“The economic impact of the Panama Canal jam: Inflation and shipping losses“
Capacity is down; time-to-market is up; and costs are rising: The Panama Canal is under environmental pressure.
See also: “Drought Saps the Panama Canal, Disrupting Global Trade” (gift article).
* Clive Cussler, Blue Gold
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As we deal with drought, we might recall that it was on this date in 1982 that a soil sample taken in Times Beach, Missouri, was found to contain 300 times the safe level of dioxin (c.f. Agent Orange). A byproduct of the manufacture of hexachlorophene (banned in 1972) by NEPACCO (the North Eastern Pharmaceuticals and Chemicals Company), the dioxin was meant to be stored securely onsite, but was eventually improperly disposed of in a trench in the facility, and by a local waste handler.
Times Beach– well over 2,000 residents– was completely evacuated and relocated early in 1983. The land that was once Times Beach is now Route 66 State Park. One building from the town still exists: the park’s visitor center was once a roadhouse from Times Beach’s glory days and was the EPA’s headquarters for the area.
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