Inflation is running hot. It’s now 7.5% in the US. Though I bet the numbers are climbing as I’m typing this. I think it’s safe to say that central bankers have officially ditched the word ‘transitory’ from their speeches. Cause transitory it ain’t! And while there are a number of things that come together to form this giant inflationary cobweb (read here whether inflation was inevitable) oil prices are smack in the middle of it all. And Russia’s invasion of Ukraine sent prices to the sky (past $100 a barrel that is, for the first time since 2014!) with some investors calling it could hit as much as $150. Ouch.
What’s The Biggie?
Oil is literally what oils our economy. It’s what we use to produce our electricity; heat our homes, and drive our engines. We all need electricity (I had two power cuts last week so I can totally appreciate it!), we need heat and we all most certainly need our trucks and lorries to be powered. Cause if not, how will food be transported from its birthplace to our tables, huh? (Read here where all the real drivers of our economy have gone to). The economy suddenly seems so fickle now. It makes you realise how everything slots into the other and if one thing becomes undone, the whole system goes up in arms.
With oil shortages (I blame years of underinvestment) topped with rising demand as the pandemic slowly but surely fades away, us lot are slapped with higher prices. When the price of oil rises, you know CPI’s going up with it. But now we’ve got a double whammy (if I can even call it that) whereby these pre-existing oil shortages have come head-to-head with sanctions on Russia aka one of the world’s largest exporters of this stuff. Russia accounts for 10% of the world’s oil supply; 16% of natural gas supply and a whopping 44% of global palladium. In other words, natural resources are vital. And we’re realising just how so.
So when the price of oil goes up this means that firms’ input costs rise. Straight away. Without them doing anything. They’re having to pay more for fuel (transporting trucks to and fro), heating and all sorts of other stuff. But it’s not just oil prices that are causing this migraine. It’s labour shortages (read here what that’s all about), pent-up demand and a whole host of other supply-chain issues that covid spurred on. Yay. This explains the endless wait for that couch of yours or any piece of furniture for that matter! Oh, and cars. Don’t get me started on those. Some models have you waiting as much as 12 months. No wonder prices are hiking. Fast. Supply and demand, guys. Supply and demand. And until we get to a nice, healthy equilibrium (gosh haven’t used that word in years), prices will keep on going up.
All this means that businesses’ profit margins are falling by the waste side and they obvs aren’t gonna sit back and watch their money vanish from their eyes. But some of those who can’t raise prices (or won’t) are charging us more – in other ways. Pay attention and do not let yourself be fooled! Head here for ways to protect your money from inflation aka the invisible tax.
Groceries: Lighter And Pricier
We did our grocery shopping today and I noticed that the block of cheese (the one we always buy) has miraculously changed its shape, overnight! It went from being rectangular (and heavy-ish) to square, and not-so-heavy. Hey presto, no price rise, but I’ve certainly paid the same price for a lot less cheese. Say hello to shrinkflation. Same price, only smaller stuff! How lovely is that. See, companies get away with it (or at least think they can) because we tend to just look at the price we’re paying and if we see that the price has stayed the same, then we’re happy as Larry.
But I’m now seeing this pesky form of inflation absolutely everywhere. Everything’s become smaller! ARGH. I noticed the same thing with my chocolate. I treat myself to a set of 5 chocolate bars with 5 pieces per bar that come in a lovely orange packet. But last week, the packet felt lighter. Guess what? Now there are only 4 pieces to each bar!
But the first time I came into contact with this sly form of inflation was with my Toblerone’s:
I mean just look at that! As if we wouldn’t notice! Toblerone’s are literally not the same anymore. Makes me sad just thinking about it. I remember when the gaps between them were so small that the only way you’d be able to get a piece off was by pushing it forward, making that clicking sound. With this new contraption you can pull them off normally. Now where’s the fun in that.
Fear Not, It Ain’t Stopping With Food.
While cars won’t actually shrink (though I’m not putting anything past them!), car dealers are being extremely crafty at getting us to pay more without even noticing. Some are charging car buyers mandatory paintwork, mud flaps (I had to google those) and all sorts of other stuff. As if paying well-over-the-odds isn’t fun enough you’ve got all this to pay for.
Look at those Harley Davidson bikes, well last year they’ve added an extra charge to cover the costs of rising material prices. And Peloton, they started to charge customers $250 for ‘delivery and setup’ of some of its bikes. As though they weren’t pricey enough! Before this, the fee was free. So yeah, while price of these bikes have stayed the same you’ve got added costs left right and centre.
They’re not the only ones. Look what Disney’s done at Disney World, Orlando: they stopped offering free airport shuttles (aka the Magical Express) which means guests now have to foot the bill for any transportation costs. The parks also added several other sneaky fees while keeping the base price of a ticket at $109. But in reality, when you add up all the other costs, you’re paying way more than $109. Disney’s CFO told analysys that “we can cut portion size which is probably good for some people’s waistlines” but they won’t be raising prices outright. Guess that’s one way of putting it!!
Materials Matter Most
We’re now starting to realise just how crucial commodities are, hard and soft. While all these exciting tech stories have captured everyone’s attention, these kinds of events have a way of making us realise that when push comes to shove, it’s raw materials that run the world. Literally. Since we need them in almost everything. And they just so happen to be not-quite-so-infinite. And for that reason, they’ll forever be precious. Until they’re not again.
All these rising costs are hitting us where it hurts. Our standard of living is getting worse by the day (thanks, CPI) since our money is being worth less as it loses purchasing power (here’s what you can do to make sure it won’t become worthless!) Everything is going up, from our groceries to our energy bills to our fuel. We’re all feeling the pinch. What you can do without, do without. What you don’t need, don’t buy. Conserve your money. No one knows what lies round the bend.
Next time you find yourself drifting up and down aisles, don’t just pay attention to the price of what you’re buying but look at its weight, too! Cause that’s how these guys are gonna try catch you out.
Get those inflation-sensor glasses on. Don’t let them outsmart you!!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.