Ghost inflation: what is it and how you’re already paying it
(NEXSTAR) – Inflation means that the price of just about anything and everything is going up right now. It’s obvious at the gas pump and the grocery store. But there is also a more underhand force at play – a force economists call shadow inflation.
Shadow inflation refers to a type of inflation that is much more difficult to capture in the Consumer Price Index. This is because the price of a good or service may stay the same, but the quality has gone down.
Say you check into a hotel, says Daniil Manaenkov, an economics researcher at the University of Michigan. “You used to walk into a hotel, to be greeted, to chat with people at the reception, every morning you would have a good sized continental breakfast, you would sit in the lobby and observe the others clients.
“Now if you check in there might be a long queue, there is only one agent who is overworked, your breakfast will have a limited choice. You will be seated alone with the closest table a few feet away from you.
The hotel may also have discontinued daily room cleaning services due to the risk of COVID or staff issues (or both). And maybe gym access is limited, so you have to sign up for a time slot instead of just showing up. And maybe because of social distancing, you line up six feet apart at the check-in counter, and now the line winds outside where it’s cold and rainy.
These small changes add up and are difficult to measure. But at the end of the day, you get fewer amenities during your stay, even if the room rate hasn’t changed. It’s shadow inflation.
The same is happening in many restaurants in the COVID era. Menu prices may have increased or stayed the same, but customers are now encouraged to carry their own tables or order via a QR code instead of a waiter.
“Most of these attributes are not actively measured by our statistical agencies, so it won’t show up, but you will personally know that you are getting poorer service,” Manaenkov said.
There is also another kind of sneaky inflation going on right now called “shrinkflation”. This is when, instead of increasing the price, a manufacturer makes the product smaller. So a box of cereal might go from 19.3 ounces to 18.1 ounces – as was the case with General Mills cereal this year – but the price stays the same and customers are often not smarter.
Shadow inflation, shrinkage, and old steady inflation combined mean your money just won’t go as far this year as it did last year. Are things going to change course? If so, it will be done slowly, Manaenkov explained.
“Consumption habits are sticky,” he said, which means people expect what they always have, like a waiter taking their order when they are seated in a good restaurant. But COVID has forced us to change our ways and quickly adapt expectations and habits.
“Now that we’ve been through this phase of preference disruption, I think going back – at least for a lot of people – won’t be necessary because people have accepted the new format,” Manaenkov said. If customers demand more amenities for their money and there is enough competition, the market may slowly decline, but that remains to be seen.