Inflation, Stealth Inflation, and How to Maintain Your Purchasing Power Against Both

Phoenix Capital Research's picture

As noted in Monday’s essay, the Federal Reserve and world Central Banks, by loosening monetary policy and spending money in order to combat their dreaded debt deflation, have unleashed inflation upon the financial system.


This is happening both blatantly in the form of prices being raised…


            Food prices hit record highs in 2011


The price of basic foodstuffs hit a record high in 2011, with the cost of cereals surging by more than a third over the last 12 months, the UN's Food and Agriculture Organisation said on Thursday.


The FAO said that its monthly Food Price Index averaged 228 points in 2011, the highest level since records began in 1990, although prices did slide by some 2.4 percent in December. The previous high was in 2008 at 200 points.


The Rome-based organisation said that its cereal price index -- which includes the cost of rice, wheat and maize -- averaged 247 points in 2011, up some 35 percent from 2010 and the highest since the 1970s.


McDonald's 4Q net income jumps 11 pct


Higher costs for ingredients also continue to be an issue, even though costs for some ingredients, like wheat and corn, have leveled off. McDonald's said it expects costs for most of its commodities in the U.S. to increase 4.5 to 5.5 percent in 2012, in line with 2011's 4.9 percent increase. Last year, McDonald's raised menu prices three times, for a total price increase of about 3 percent, in March, May and November.


Chief financial officer Pete Bensen said the company would continue to "strategically take increases to offset some but not all of our higher costs."


            Starbucks raises prices in U.S. Northeast, Sunbelt     


Starbucks Corp (SBUX.O) raised prices by an average of about 1 percent in the U.S. Northeast and Sunbelt on Tuesday, making coffee-drinkers spend more in New York, Boston, Washington, Atlanta, Dallas, Albuquerque and other cities.


Shares of Starbucks, which boosted drink prices in some other U.S. markets in November, retreated to $45.30, down 1.5 percent, after hitting a new high of $47.04 in early trading.


Starbucks expects high costs for things like coffee, milk and fuel to cut into profits this year. Like other restaurant operators ranging from Chipotle Mexican Grill (CMG.N) to McDonald's Corp (MCD.N), it is raising prices to help offset some of that cost pressure.


            The State of the Economy By the Numbers


In Jan 2012 the average national gas price is $3.389 a gallon, an increase of 28 cents compared with $3.11 a gallon a year ago.

Historically this is fairly high for this time of year.


… however, inflation is also entering the financial system in a more stealthy mode as retailers begin to offer less product for the same price.


Indeed, as the below article summarizes, Kellogg’s has reduced 15% of the cereal in its boxes. Snickers has reduced its bars by 11%.  Haagen-Das has reduced content by 12.5%, Heinz Ketchup has reduced content by 11%, etc.


U.S. Companies Shrink Packages as Food Prices Rise


Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.


 Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don't notice that they're getting less of the product for the same price.



It’s worth noting that this trend has been in place as far back as 2008:


The incredible shrinking Doritos bag


PepsiCo is not alone in subtly cutting size as a substitute for raising prices. Kellogg (K, news, msgs), General Mills (GIS, news, msgs), Unilever (UL, news, msgs), Wm. Wrigley Jr. (WWY, news, msgs) and Procter & Gamble (PG, news, msgs) have quietly trimmed the amount of cereal, ice cream, chewing gum, paper towels and toilet paper you get. (See the slide show.)


Make no mistake, inflation is creeping into the system in a big way. And the Fed will not raise interest rates to fight it until it’s far too late. Debt levels are simply too high for the Federal Government and US corporations, particularly the large banks which the Fed has been doing everything it can to prop up.


Swing by for more market commentary, investment strategies, and several FREE reports devoted to helping you navigate the coming economic and capital market changes safely.


Best Regards,


Graham Summers




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laosuwan's picture

First of all, coffee is a beverage not a food. Secondly, there is price inflation in coffee because of an increase in the demand for coffee, which is to say there is a shortage of Arabica coffee relative to demand. Raising interst rates will do nothing to address this fact. Packaging sizes are unchanged. However, if food packaging sizes in usa are reduced I think that would be a good thing from what I saw during my last visit there. You are more likely to see a degredation in product quality, for example using robusta in what is supposed to be an arabica coffee, than the other predictions in your post. Just saying

mantrid's picture

this happens worldwide, in Europe too. there are also micro-bubbles popping out and ceasing: in Poland - sugar, Ukraine - flour, Sweden - butter. tiny temporary supply shortage implies aggressive price hikes, then they go back to "normal" unofficial inflation rate...

Havana White's picture

Five bucks for large bag potato chips.  Eight and change for the medium-large Hellman's mayo.  Fish prices -- outta site.  Made in China Band-Aids 7 to 10 bucks a box.  Vitamins gone way higher.  Plywood gone nuts.  CPI is utter bullshit.  If Band-Aids were on the list they'd probably apply the hedonism ruse and substitute masking tape.

Clowns to the left_ jokers to the right's picture

There's a site called The Consumerist that has been tracking this since 2008, although they don't list every single change that's occurred. They call it The Grocery Shrink Ray.

I found it after I started noticing changes not long after the elections. I'm well past giving a damn about a name brand these days. More often than not I'll buy a store brand or won't buy a particular item at all.

YouThePeople's picture

I hate it when my package shrinks.

Dermasolarapaterraphatrima's picture

"Pound cakes" are now only 12 oz.

Tijuana Donkey Show's picture

That's a fiat pound if you didn't know. Fiat pounds are a ratio of the M1 money supply to ounces, just as Ipad's are an inverse of this equation, and decrease in price as M1 increases. This is known as the Bernake postulate, also written as Eat IPad>(Food prices^2<PlebRiot)/(M1+Bailout), which, went combined with lethal doses of mind numbing high fructose corn syrup, allows for complete control. If you apply this to Greece, they don't get enough HFCS in the general diet, and they didn't lower the cost of the Ipad, leading to riots. 

booboo's picture

Getting rough here in the low country, the brothers are demanding that we leave the feet on the coon carcass, say we been selling them cats and charging them for coon, stew meat is all the same. Here kitty,kitty. Word of warning, wait 30 days on a stray cat, flea meds, don't wanna consume them!

andrewp111's picture

They should go for Groundhog instead of cat. More meat and more fat.

Eireann go Brach's picture

We will know when inflation is a problem when you start raising the prices of your Free newsletter Graham!

Diogenes's picture

Less big fat asses in the future?

i_fly_me's picture

Short big fat asses ...

rsnoble's picture

I'm shitfaced right now and

"#000000; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 1em; background-image: initial; background-attachment: initial; background-origin: initial; background-clip: initial; background-color: #ffffff; padding-right: 0px; padding-left: 0px; min-width: 750px; padding-top: 5px; padding-bottom: 20px; line-height: 1.3em; overflow-y: hidden; margin: 0px;">"

isn't helping matters any.

hivekiller's picture

Just call it a bag of chip and be done with it.

rsnoble's picture

I have a large bag of cheetos!!

battlestargalactica's picture

Recently, I was at a regional gardening expo and watched the record crowds descent upon the heirloom, open-pollinating seed sellers... Whole families with armloads of seeds; people from all socio-economic strata chatting quietly, some with embarrassment and/or disgust that they simply can't pay grocery store prices or that didnt want any more goddamn Frankenfood. It was fantastic to then watch the 'old gardening guys' get to share their expertise with the 'noobs' and be listened to with respect and admiration.

But like all things, you can't just buy the seed, you have to get your hands dirty and put in that 'sweat equity'... So here's to all those suburban manicured lawns getting ripped up for raised beds of non-gmo tomatoes, squash and cucumbers! At least until the fascist HOA's decide they gotta fuck it all up because it's (cough) bringing down property values.

Blue Horshoe Loves Annacott Steel's picture

Don't these HOA people know property values won't be going up in our lifetimes, unless we have hyper-inflation?

surf0766's picture

We are still eating from what we grew last summer. We gave food to one family for years to help them out. Nothing better that growing your own food .

Papasmurf's picture

This sort of effort is doomed to fail anyway, because the builders strip the topsoil.  A soils test and enhancement is necessary but "Dancing With The Stars" is on. 

toadold's picture

"Send me just $39.95 for shipping and handling and I'll send you my free book on how to get a government job with a REAL Cost Of Living Allowance. You say you are a white maie and just don't qulaify, I'll show you how to pass as a minority female with a disability. Apply now  before the book is sold out.. Not available in books stores though there is a hooker  in Plano, Texas that will let you rent hers."

jimmyjames's picture

Higher costs for ingredients also continue to be an issue, even though costs for some ingredients, like wheat and corn, have leveled off


Actually grain prices have fallen and so far seem to be moving in a developed downtrend-

So where is the pass through to the consumer?

Why isn't that being addressed and whatever it is-it cannot be called inflation-


Wheat prices are back to 2007 levels-


Corn in spite of the ethanol manipulation is down-

Rice at 2008 levels

Oats at 2007-08 levels

Tijuana Donkey Show's picture

That means that the casino (Wall st) liquidity money is so dry they can't gamble and starve people. Be afraid......

Overdrawn's picture

So if I don't go to Starbucks, eat Doritos or McDonalds, I'll escape inflation and live longer -:)

Fiat2Zero's picture


Check it before it vanishes:

spot gold graph (main 3 day) is currently showing gold at $1639.40, and rangebound between $1662 and $1625 (today is 2/15/12)

Only problem is gold is at $1720 currently, and has been above $1711 for a few weeks.

Someone went back and fudged the data for this graph (see 30 day gold graph shows real action).

History is being revised to stuff gold under $1711. Pretty fricken hilarious.

Fiat2Zero's picture

Date is off by 2 days as well. No doubt this will be called a glitch (not a conspiracy). Desperate.

I have a saved image.

UGrev's picture

Try having a child with gluten sensitivity and see just how much your food bill goes up. Mine went up about 25% for 1 child. Now we're thinking that my other as well as I might be [G] sensitive. There goes the money I "saved" by paying off a credit card..

RafterManFMJ's picture


We have been trying to have a kid with gluten sensitivity, but no luck so far. Dunno what we're doing wrong.

Tijuana Donkey Show's picture

It sucks, but don't buy replacement items for G issues. I spend less now, there are things I just don't eat, but beans, rice, and other great basics are cheap and everywhere. If you like processed style food from a box, your fucked. Fucked. Fucked. Also, if you like pizza, or anything fried in restaurants, your fucked. Use Amazon, and buy in bulk on Bob's Big Red Mill items, and you'll break even. 

rsnoble's picture

Sorry man; Seems to not matter what circumstance as they have an answer to fuck us all regardless.

vato poco's picture

In almost every area of human effort, the odds are 2 to 1 against. So if you can't beat the house, learn to count cards. Or cheat at poker.

max2205's picture

What no market call. Come on, don't stop now.

Dingleberry's picture

EVERYTIHNG is going up and I mean fucking EVERYTHING. Rent, utilities, insurance, food, you fucking name's going up. And if it's not going up, it's getting cut and buying less for the same amount of money. We live in a sick, twisted world where the media, corporations and politicians all conspire to rig the game. There is no hope.....only collapse. Too much bribery and coruption.  The only question is when?

rsnoble's picture

What???? But Ben says there is no inflation??? Of course there isn't when your filthy fucking rich!

HungrySeagull's picture

And some of us are chipping the other way to bring cost down. And even as we succeed in this, we see the rise in prices in most everything.

They better reconsider that Student Loan Debt though, we faithfully pay it while we try to build up something to knock it out.

If we reach a point where we say fuck it to the student loans to free up funds for food and what have you... then we probably will free up additional funds by cutting off the telephones as well.

They probably will Garnish too, but we don't care. It will hurt but that too shall pass when every last penny (Erase penny if abolished by US Mint) is paid back.

There are some things in the house budget you can trim but when it comes to living with food and such... you can only cut so far.

Oh and our little degrees and what not? Worthless. There were 10,000 graduates with the same shit and maybe 500 jobs to go around. Talk about a bubble.

Creepy Lurker's picture

There's one thing that's not going up, wages.

Zero Govt's picture

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Sorry Graham but you're talking gobbledegook... it was such hard going I got bored and couldn't read past the 1st paragraph mate

Better luck next time

duo's picture

the old 13 oz bag is now 9 ounces and air.  I no longer buy Frito-Lay products because of this.  I wonder how that will work out for them in the long run.

XitSam's picture

This has been going on in potato chips for decades. They keep the same general price but the bags get fewer and fewer ounces. Then they introduce a "Family Size!" that has twice the weight at much higher price. As both bags get smaller, the former regular bag is phased out, and the family size becomes the regular size but still at the higher price.

msmith9962's picture

Thats a sniglet.    Snackmosphere (snak' moh sfeer) - n. The empty but explosive layer of air at the top of a potato chip bag.

ncdirtdigger's picture

Or you get a 2 for 1 sale (but at a new slightly higher price). And after a few weeks the sale is done, but the new  price remains for just the 1 bag.

e-recep's picture

I noticed this back towards the end of 2006. Prices were being kept stable as the size/weight/volume of the items was getting less and less. The shampoos were the first one to strike my attention.

Papasmurf's picture

If you have a 6-1/2 oz can of tuna, DHS needs to know, since you may be a prepper.