Practical Dad

PracticalDad Price Index, December 2013:  Stealth Inflation Strikes Again…

The results for the December 2013 PracticalDad Price Index are in and after a several month period in the doldrums, the total index for all 47 grocery items rose to 109.35 (November 2010 = 100).  This 1.5 point rise - from November's 107.83 - is due in large part to the half point increase in the 10 non-food items in the grocery basket; the non-food components rose significantly based upon the increases in trash bags and more significantly, the stealth inflation rise in infant formula.  The 37 item Food-Only Component Index likewise rose slightly more than a half point, from 112.81 in November to 113.41 in December (11/10 = 100).

Month          Total Index          Food-Only Index          Spread

9/13             108.39                113.76                            5.37

10/13           107.83                112.98                            4.63

11/13           107.83                112.81                            4.98

12/13           109.35                113.41                            4.06

Remember this about stealth inflation:  the nominal price on the item remains the same so the consumer might not realize until later that the package size has actually decreased.  In the case of the infant formula that's part of the PracticalDad basket, the manufacturer - Mead Johnson - decreased the size of Enfamil Premium formula from a 23.4 ounce package to 22.2 ounces, a decline of 5.1%.  The nominal price at the stores remained unchanged over the course of the two months, yet the impact of the stealth decrease meant that a real increase of 5.4% in the cost of the previous amount of the formula for the consumer.  There are several other notable items that I've learned about stealth inflation from monitoring the PracticalDad Index basket for the past three years.

  • The change is not instantaneous but occurs over time such that the increase's impact is diffused instead of an in-your-face event.  In the case of a national manufacturer, the change can be affected across different grocery stores by the amount of inventory held by that grocer in stock.  One of the grocery chains was selling the 23.4 ounce formula packages but the shelf sticker had already been changed to account for the new 22.2 packages; when the old inventory is depleted, it will be replaced by the smaller packages so that the product matches the sticker.  This situation also occurred with Poise Women's Pads, manufactured by Kimberly Clark, as one of the grocerys continued to sell the 42 pad package - with the revised 39 pad package sticker - until that inventory was sold out. 
  • The effect of stealth inflation is also diffused by the fact that the different manufacturers are doing it at different rates and at different times.  Stealth inflation hit the generic label cans of coffee about two years ago and it took several months for the three different grocers to all move out of the original 13 ounce cans to their lesser sized cans. 
  • Having said that it occurs over a period of time, understand that once a single manufacturer engages in stealth inflation by decreasing the package size, others will follow suit.  This is demonstrated by Kimberly-Clark, the manufacturer of personal care products such as Poise Women's Pads, Cottonelle toilet paper and Huggies diapers.  An article in Zerohedge highlighted that Kimberly-Clark would be decreasing the size of diaper packaging in Q1 of 2014.  Given that manufacturers follow suit over time, I anticipate that stealth inflation will further hit young families as other diaper manufacturers follow suit to also maintain their profit margins. 
  • Stealth inflation doesn't just occur because of the rise in the input commodities, such as sugar and coffee.  These are also purely business decisions to pad corporate profits with no thought as to the situation of the consumer.  The language used by Kimberly-Clark in their Q3 2013 Recap - highlighted in the Zerohedge article - makes no reference to the increases in input prices.  It refers to these different products as high margin businesses; decreasing packaging sizes is purely a business decision that benefits the corporation bottom-line. So the cost of Huggies diapers will rise - following the practice of other diaper manufacturers - which further crimps the budgets of young families who are already whacked with declining family incomes.  Since Kimberly-Clark has also decreased the package size of it's Poise Women's Pads (from 42 pads per package to 39), I wouldn't be surprised to see a profit-driven decrease in package sizing for Depends Undergarments, which also impacts an income-afflicted marketing cohort.

So what's the takeaway from all of this for the family?  It's the lesson to be passed along to the kids that they are going to have to pay attention to the world around them, a difficult thing to do when wrapped in an electronic cocoon graciously provided by Apple and furnished by Google.  They exist for the benefit of the corporate bottom line, regardless of their own circumstance.

As my own father once told me decades ago:  Nobody's looking out for you, kid.

 

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