Inflation has arrived in more ways than one. For example, cringe-worthy gas prices may make you rethink last year’s pickup truck purchase. However, it’s not the only thing affecting the value of cash in your wallet. The Federal Reserve’s preferred inflation gauge hit 4.4% in September. That’s a 30-year high, well above the U.S. central bank’s preferred target of 2%.
While consumers are certainly aware that prices are going up as a result of classic inflation, there are some other types of inflation that could make things worse. “Skimpflation,” coined by NPR’s Greg Rolsalsky, could cause inflation to be worse than government statistics state. Moreover, Rolsalsky claims that many argue that the government does not properly account for such inflation in official statistics.
How The Quality Of Goods And Services Affect Inflation
For several years, former Senior Economist for the U.S. Congress Alan Cole believed the annual inflation percentages put out by the government were not as grim thanks to broad increases in the quality of goods and services. In other words, high-quality services counteract the inflation rate. Cole compares it to when you needed to go purchase a single record or CD for quite a bit of money. Now, you have access to almost all music ever published for very low rates.
On a recent trip to Vermont, Cole realized something about the current state of inflation. While staying at a hotel with a continental breakfast, Cole experienced skimpflation when he woke up for breakfast. Instead of a broad mix of items to choose from, Alan stated that it was a “sad and pitiful” breakfast. He noted that it consisted of a “plastic-wrapped, mass-produced pastry, prepackaged Raisin Bran, and lukewarm milk.” Maid services were also reduced.
What Is Skimpflation?
As of late, inflation has been pretty easy to spot. Classic inflation is when a product’s price rises, as in the case of gasoline and groceries that have steadily risen over the last few months. Labor shortages and supply chain problems are widely blamed for the skyrocketing costs and mounting delays. Nevertheless, the economy is turning to a sneakier type of inflation to stay afloat.
NPR’s Greg Rolsalsky is proposing a new term for this phenomenon: skimpflation. Rolsalsky explains that skimpflation is “when, instead of simply raising prices, companies skimp on the goods and services they provide.” While the price for these services may have stayed the same, their quality is rapidly declining compared to what it used to be.
Skimpflation Is Lurking Everywhere
Amid the surging costs of pandemic-related expenses, businesses are scrambling to stay afloat. In the midst of the pandemic recovery, skimpflation may be the solution for companies that are struggling to find workers or cannot afford to recruit.
There are several examples of this. In some cases, it is caused by keeping shareholders happy. Disney has recently been called out for skimping on the services it provides while charging guests the same amount of money at the gate. During the pandemic, Disney removed the tram system that transported visitors from the parking lots. The trams will remain idle “for the foreseeable future,” and guests will be forced to walk almost a mile to enter the park. Disney also canned the once-free Fast Pass system, replacing it with a pay-to-ride pass. While doing so, the day ticket price didn’t drop.
Small businesses have also suffered through the pandemic, often struggling to keep their doors open. In many cases their only solution may be giving consumers less for their money.
Have You Experienced Skimpflation?
You may have experienced the nasty side effects of skimpflation already. Have you seen longer shipping times, longer lines at the grocery store, or extended hold times with customer service? All of these could be related to skimpflation if employers don’t have the capital to pay what potential employees are demanding.
Whatever the underlying issue, be shoring up profit numbers or the inability to pay, companies are choosing to cut back on the quality of their services.
So what does all of this mean? Instead of like before, where the quality of services counteracted inflation, the declining quality of services are now amplifying inflation’s cumbersome effects on our wallets. The current state of things sees increasing costs as well as lower quality services.
At the end of the day, skimpflation may be here to stay for the time being. In the meantime, it may be a good idea to adjust your budgets accordingly for the added cost of goods as well as the reduced quality of services. Whether it’s inflation itself or other factors such as skimpflation, Cole reminds us “We’re getting less for our money, and that’s fundamentally what inflation is all about.”