Practical Dad

PracticalDad Price Index/March 2014:  Presenting Stealth Deflation…

It's a bit later getting the results out than I prefer, but the data has been crunched for the March 2014 edition of the 47 item (37 foodstuff/10 non-foodstuff) PracticalDad Price Index marketbasket and the results show a continuing deflation.  The Total Index of the full 47 item basket dropped from February's 109.64 to 109.41 while the Food-Only Index of the 37 items likewise dropped from February's 112.46 to 112.06 (November 2010 = 100).  The upshot is that it cost 9.41% more to purchase the same 47 item marketbasket in March 2014 than it did at the Index's outset in November 2010; for the foodstuff segment, the cost is 12.06% more than November 2010.  The Food-Only Index is still below the high mark of 114.33, reached in December 2012.

The marketbasket certainly captured the rise in dairy prices as butter, 2% milk and sliced deli cheese (American) all rose; these three were fully half of the six items that had price rises from February 2014.  The rises however, were offset by price decreases in eight other items and as occurred in February 2014, one of the three separate grocery stores saw multiple items with price decreases (versus a rise in butter, a dairy product).  Along with other price decreases in other stores, the differential was sufficient to drive the average cost of multiple items downwards.

Many in the past several years have become familiar with the term stealth inflation, which refers to the producer's practice of maintaining the nominal price for an item while decreasing the package size; the net effect is a real increase in price for the item and the maintenance of the producer's profit margin.  There have certainly been drops in the prices of different items, in different stores, since the Index's November 2010 inception but there have been a noticeable spate in the past three months, most especially within a particular grocery store.  Some are cyclical - milk and eggs are a prime example as their prices yo-yo - but after December 2012, I noticed that prices in fairly common foodstuffs have begun dropping, especially in the one grocery store.  I frankly believe that this is because their usual shoppers are in lower-income brackets that have been particularly hard hit in the past several years and the store is having to find ways to decrease their pricing in order to maintain a sufficient sales volume that allows them to survive.  This is in addition to other stores which are also having some price decreases (mixed in with the increases).

But what we're now beginning to see is what I've come to refer to as stealth deflation.  While it's doppleganger, stealth inflation, maintains nominal prices by sacrificing the physical quantity, stealth deflation cuts nominal pricing by sacrificing the physical quality of the foodstuff.  To get a handle on this, consider the price decreases in certain items over the past three months (remember that the prices are for items at one or another particular store so the percentage drop is more pronounced here and less pronounced in the final three-store average).

Item                    1/14          2/14          3/14          %

bread, 20 oz     1.19          1.00          1.00          (16)

peanut butter  4.29          3.69          3.69          (14)

can green         0.99         0.79          0.79          (20)

     beans

can diced         0.99          0.79          0.79          (20)

     tomatoes

can corn           0.99          0.79          0.79          (20)

can chunk        1.39          1.39          1.00          (28)

     tuna

box generic      3.84          3.84          2.82          (27)

     sugar flakes

An example that caught my eye - and required that I actually revisit the store in order to double-check - was the 28% drop in the cost of a can of tuna at one store.  The confusion resulted from the fact that there was now a store-brand can of tuna (5 oz) at the old price of $1.39 per as well as a can of 5 oz store-brand tuna at the new and reduced price of $1.00; which was the correct can for the index?  The difference was that the reduced price can was still labeled the chunk light tuna, which was the type that I've priced across all three stores since November 2010 and the same-priced can was now labeled as solid tuna.  I can't tell you the exact difference between the two but a reasonable surmise is that the lower priced chunk tuna is now composed of different parts or remains of the tuna, which would go for less money than the higher priced tuna.  In other words, a decreased quality in comparison than was used before.  The same would go for the loaf of bread, peanut butter and certainly store-brand sugar flakes as the product is now coming from a producer with a cheaper, ostensibly lower grade set of ingredients than was available before.

So what's the upshot of stealth deflation and what does it really mean?  The consumer's purchasing power is being eaten away by a declining income on one side and a purposeful monetary policy that promotes inflation on the other.  In order to maintain sales volume and affordability, producers will also engage in stealth deflation by decreasing prices at the cost of ingredient quality.  The controversy over pink slime in ground beef is a prime case of the effects of stealth deflation; the additive acted as an extender to the product, allowing the ground beef to be sold at a lesser price than it would have otherwise and when the slime was removed, the cost of ground beef rose.

If parents are truly concerned over what goes into their kids' bodies, then they're going to have to pay much greater attention.  On the one side, to ingredients and inputs, and on the other to entire meal planning and food selection in order to make the budget extend further than it has had to in the past. 

Welcome to the future.

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