How Shadow Inflation Affects Your Portfolio Without You Even Knowing It

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SAN ANTONIO – Over the past year, we’ve seen a wave of disruption, ranging from supply chain issues to labor shortages, but now we’ve come across another economic symptom: shadow inflation .

What is shadow inflation?

Shadow inflation occurs when consumers pay the same price for a good or service year over year, but the quality or quantity has declined. It can take many forms to help offset costs without alarming customers while remaining price competitive.

Let’s say you buy a cup of coffee for $ 5, but you have to pay extra for the cream and sugar. This allows the seller to charge a competitive price while creating another form of profit. It also changes the experience of having coffee.

Some of us may have just expected the sugar and cream to be free, but now that leads to another decision on what we’re willing to pay. Sometimes it’s more subtle and can come in the form of a fee or a supplement.

“You only see it when you get your check. Law? All of these extra hidden charges are just applied to keep the price normally lower, but the total price is higher, ”said Dr. David Macpherson, professor of economics at Trinity University.

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Ghost inflation affects national and local businesses

These types of changes can work for businesses if the consumer is still willing to pay. We saw something like this when the big airlines started charging for checked baggage around 2008. After a while it just became something more people were willing to pay for.

Small local businesses are also affected by shadow inflation.

“The vendors we get products from have added a 10% fee across the board,” said Michael Davies, director of El Taco.

Sometimes shadow inflation can come in the form of fuel costs or shipping costs for business owners. These additional charges have created additional pressure for businesses, and this additional cost is likely passed down the line to the consumer.

But no business survives without its employees. With competitive salary options available in San Antonio, Davies has also had to increase his starting salary to attract workers.

“We increased our starting salary by $ 2 an hour, so (it’s) definitely increasing costs,” Davies said.

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“More money, more problems.”

The question is how long the inflation cycle will continue and how much more we will have to pay for goods and services.

“The forecasts that they (the Fed) have… continue to be pushed back. So even the administration (Biden) now says it won’t improve until the middle of next year or later, ”Macpherson said. “These supply chain issues are significant, and they don’t go away quickly, and not all expenses have gone through the economy.”

Keep an eye on the bill as inflation continues across the US economy.

Copyright 2021 by KSAT – All rights reserved.


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