Stages of Inflation

When you have already lived through hyperinflation, you start noticing certain things. Things that I experienced in an ex-Soviet block country years ago, are now starting to happen here, in Canada. It is an eerie “deja vu” feeling.

One of those things are changes in products, particularly food products, that many have noticed. From my experience, these changes usually come in the following stages.

The first stage would usually be a small price increase – only a few percent. We saw this in Canada at first when, for example, dollar stores started offering products costing more than a dollar. Of course, they always try to make this look as an advantage to the customer – in this case, make it seem as if you, the customer, will have a wider choice.

As inflation rises, but companies try to avoid raising their prices, they tend to turn to strategy number two – shrinking product sizes. We had products in my native country that shrunk a number of times between 1991-1996, when annual inflation was between 63% and 123% each and every year. Companies were trying to sell their products to people who could afford to buy less and less.

We have been seeing this here, in Canada, for a few years now. One example would be cheese. A block of cheese used to weigh on average 500 grams. Today, different brands offer packages of 400 to 450 g. This is an inflation of 10% to 20%, hidden in the shrinking block of cheese.

Add to this the next stage, number three – changing ingredients. Companies would try to replace high-quality ingredients with cheaper ones. This, of course, influences the taste and quality of the final product.

A personal example: For more than 10 years now, I have been buying a particular brand of tea biscuits. First, their price started to gradually increase, basically doubling in a period of a few years. Most people do not seem to mind, if a product that used to cost a dollar now sells for $2 – but that is 100% inflation over a few years!

Then last year, for a period of several months, my favourite tea biscuits simply disappeared – gone from the stores where I used to buy them all the time. When they finally reappeared, and I bought some, the taste had changed – had nothing to do with the one I was accustomed to! It brought back memories from the same thing happening in my native country, something I never expected would happen here!

Then comes stage number four – unable to curb costs anymore through ingredients alone, companies would start tweaking the packaging. The packaging material would change, replaced by cheaper ones with lower quality. My favorite lemonade brand changed the box they had been using for years with one that bends when you hold it, causing spills, and leaking easily in the fridge.

Each company, and every product, can go through all or some of these four stages, omitting some stages (as the tea biscuits, which did not “shrink”) or repeating some stages a number of times.

The next stage is another increase in the price. The block of cheese, which used to go on sale at $2.99 for 500 g about 10 years ago, would today cost, again on sale, $4.99 for 450 g. Thus, after having shrunk by 10% to 20%, the cheese now costs 67% more on sale than it did 10 years ago – a total inflation of about 77% to 87%!! Calculated over those ten years, this comes up to an average of 7.7% – 8.7% annual inflation on that block of cheese alone. During that same time period, how many of us had had an increase in our salaries of 8% to 9% per year?

What is scariest for me is that I know what comes next – inflation will keep rising and, in one particular moment, it will get out of control, going to double-digit numbers, or maybe higher (in my native country,  the inflation rate for the year 1997 was 1080%). This is a one way street, and there is no turning back…

These are my personal observations, now I would like for you to share yours as well!!

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