FROM THE PROFESSOR
Inflation Is Only One of the Flations You Should Be Concerned About As a Consumer By DR. DAVID PRICE Inflation, or a sustained rise in prices, has been increasing dramatically over the past year. Prices have been going up at their fastest rate since the early 1980s, rising 7.9% in February and 6.4% over the last 12 months. Driven by supply chain disruptions, labor shortages and consumer demand after the pandemic, most of us started to feel the pinch of increased prices immediately. This economic squeeze often leads to a reduction in consumer spending, and that can be bad for firms and the economy. Companies face their own rising prices, such as costs passed on from suppliers, transportation expenses or increased wages. Many firms are still feeling the effects of the pandemic where sales deteriorated (e.g.
70
MAY/JUNE 2022
retail, travel) and consumers were finding alternatives (e.g. home entertainment). Being competitive in this environment has been difficult, and while firms want or need to pass along costs, they are concerned that increasingly fickle and pricesensitive consumers won’t pay for it. Therefore, companies are searching for other ways to remain profitable. One method firms use against inflation and pricesensitive consumers is to keep prices at a similar level, but reduce other component parts of the product that are not as noticeable. These are the other “flations” that creep up on us and we often don’t know it’s happening. These are: Hideflation, Shrinkflation, and Skimpflation.
TK Business Magazine
HIDEFLATION
Normally termed hidden inflation, this type of inflation occurs in the form of hidden fees and surcharges that are not always obvious and are not included in the advertised price. This flation hit a high at the start of the pandemic, with businesses such as restaurants including “Covid-19 fees” due to their extra costs, up to 20-30% in some large cities. Recently I was booking an international airline flight and was charged for a “seat booking” which apparently is a cost to reserve your seat (I thought I was doing that?). This additional amount was between $25$60 per seat, for each of the four connecting flights. There was an extra $200 for a second bag (each way, with strict size and weight limits), and a fee for using a credit card (how else does a person pay for a flight?). These hidden fees have also been called “junk fees” and in the case of airlines the Department of Transportation is investigating the issue. The hotel industry has increased hidden fees (e.g. resort fees, cleaning fees) and in the financial sector the Consumer Financial Protection Bureau is looking at some of the exorbitant late or overdraft fees charged. For consumers, this can be confusing and frustrating, and several watchdog groups and government agencies feel that by not providing price transparency it hurts consumers in making informed choices.
