Inflation Hidden in Plain Sight

Yesterday, I showed how Consumer Prices Have Soared 160% Since 2001 for everything from burritos to healthcare. This enormous loss of purchasing power is not reflected in the official measure of inflation, which claims inflation is subdued (1% or so annually).

But price inflation doesn’t necessarily reflect all the inflation that’s hidden in plain sight in smaller quantities and declining quality. We’ve all observed prices of consumer items remaining the same while the amount of the product we receive for our money is less than it was a few years ago.

While a reduction in product quantities can be easily calculated, reductions in quality are harder to discern and calculate.

Consider the quantity and quality of the paint being applied to kitchen appliances. Although I can’t quantify this, I’ve noticed appliances such as ranges and refrigerators are now prone to rust along the bottom edges in a few years because the manufacturers no longer apply much paint to surfaces and edges that are not visible, for example the underside of the steel exteriors.

This sort of rust was unknown in older appliances, or would only be visible after decades of service, not a few years.

I also notice that the paint is now so thin that scrubbing will in some cases remove the top layer of paint.

These reductions in quality may be the result of corporate cost-cutting or planned obsolescence or both. The net result is a form of inflation/loss of purchasing power as the price does not reflect smaller quantities and reduced quality/ service life.

As a result, many hedonic adjustments to inflation that are supposed to reflect better quality or productivity characteristics are bogus. A laptop computer may have more memory and processing power for the same price as previous models, but who measures the reduction in service life or the stagnation of productivity?

The reality is that most of us don’t even use the full capacity of the processors or memory, and the industry’s planned obsolescence has reduced the service life of new PCs. My 31-Year Old Apple Mac Started Up Fine After 15 Years in a Box (February 28, 2015)

Big Pharma has been busy jacking up the cost of medications that are off-patent by 500% or more. Meds that were a few dollars are being increased by 1,000% because, well, Big Pharma can raise prices without delivering any additional value.

Can we be honest and say that many of the reductions in value, quantity and quality are actually instances of fraud?

Whether we attribute inflation in plain sight from reductions in value, quantity and quality to cost-cutting, planned obsolescence or fraud, the reality is that these declines in purchasing power and value (i.e. inflation) are real but difficult to calculate and track.

That is why inflation in plain sight is so attractive to corporations and institutions.

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  • Is inflation higher than you think?

    If you’ve noticed your wallet seems a little lighter after a trip to the grocery store or gas station, you’re not imagining things. Here and around the world, the prices of everything from cotton to coffee have risen. The Department of Agriculture forecast for food costs in 2011 calls for an increase of 3 percent to 4 percent. And, the price of fuel is up — a lot.

    http://www.bankrate.com/finance/personal-finance/is-inflation-higher-than-you-think-1.aspx

  • Jay

    We’ve been in the market for a new fridge. After reading around and consulting a fridge repairman, I’ve discovered the following. Yes, new fridges are engineered for planned obsolescence with a life span of about ten years. Haier makes the worst fridges, so GE sold their appliance division to them. Electrolux owns Frigidaire but the fridge we currently have has been a dog. The repairman recommended Whirlpool brand fridges because the designs didn’t change much and the parts have been easy to obtain; he saw fridges from other manufacturers go to the dump, even 3-5 years old because repair parts were unobtainable. Remarkable.

    • ICFubar

      We have a 1950s model Frigidaire in our family cabin that has been serving faithfully all these years leaving us all gobsmacked as it hums away in its old age. Today the debt Ponzi economy requires almost exponential new debt to pay off older debt or a debt deflationary spiral sets in. This means that an ever increasing amount of natural resources must be turned into more product and an ever increasing amount of product must be turned into landfill to keep the scheme going….or why your new fridge, toaster, TV, washing machine or what have you will not last but little beyond the calculated time frame for replacement.

  • jadan

    Don’t confuse inflation with devaluation. Inflation happens when demand is strong and supply is limited, no matter what the quality of things sold. Devaluation happens when speculators bid up prices. Their paper profits are redeemed in the same dollars you use to purchase real stuff. Good money gets mixed with money-for-nothing, which dilutes the good money. The speculators are not consuming or producing. they are playing a parasitical role in the economy. This unearned income is a type of tax on your productive dollars. You support Wall Street gambling and scamming with devalued dollars that looks a lot like inflation, but is not. The hard money school ( “Austrians” ) blames paper money ( “”fiat money”) for the loss of value. They don’t blame speculation, usury by another name, for the loss of value in their dollars. The financial sector is to blame for devaluation. We have to print up money to pay these parasites and gangsters. We devalue our own and economists call it inflation because they’re also “investors”. The Fed is the greatest parasite of all.

    • ICFubar

      Excellent comment !

  • ICFubar

    All my adult life, since the 1970s, I have seen inflation running at something between 8 to 10% a year. The prices of purchasing an new automobile doubling every 10 years or so in all western nations. While the cost of health care, as profits for the corporations providing their goods and services to this sector of the economy , has also kept to this pace. Of course now, with wages stagnating or even declining any price increase has an inflationary aspect to it on the supply side but not from the usual demand side as wage increase demands remain flat as the usual driver of inflation, seen as wages chasing price rise. Another sign the economy has been turned on its head.