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Impact of Inflation on Groceries

Have you seen the grocery store signs that say, “Buy one, get one,” or “Buy one at $4.99, or get four for $2.99 each?”

It’s a concept called “spaving,” a time-tested marketing strategy designed to get consumers to spend more–perhaps more than they wanted- thinking they’re saving.

“Spaving” plays on your emotions, designed to promote an impulse buy because even the most disciplined shopper may be unable to pass up a deal. In some instances, the price-cutting promos work great for the consumer. But other times, “spending more money to save money” does not make sound financial sense. 1

Inflation Buzzwords

The accompanying chart shows that food price inflation has decreased since mid-2022 as companies have resolved food production costs, labor costs, and supply chain issues. The Consumer Price Index for “food at home” has been tracking right around 1% this year, but the recent price stability doesn’t offset the food inflation from 2021 and 2022.2

Even though food prices are stabilizing, retailers are still using tactics that negatively impact consumers. Some companies attempt to mitigate their rising costs when producing a good by maintaining the sticker price and reducing the size of the product. This concept is known as “shrinkflation” and tends to happen during periods of inflation, a type of hidden inflation. Customers are more likely to notice when their paper towels go from $15 to $17 but not as likely when the sheet count goes from 165 go 147.4 Although it has been happening for ages, it was most common in 2016 according to data collectors.5

Avoiding the sticker shock might be one strategy, but the consumer may also experience “skimpflation”, where the company resorts to using cheaper and maybe even lower quality materials to save on costs. This was the talk in a reddit thread where users noticed and vented about the quality of Costco toilet paper post covid.6

On the other hand, other retailers are starting to feel the heat from bargain hunters, too. In recent weeks, Target, McDonald’s, and several others have cut prices as shoppers become more selective about spending as their budgets get squeezed.3

We’ve worked with several clients who were having trouble coming to terms with inflation costs and how it has impacted their cash flow. Retirees are finding new ways to adjust. So here are a few ideas to avoid “spaving” and deal with “shrinkflation” and “skimpflation”. Compare unit costs instead of the sticker price. Purchasing in bulk can sometimes lower the unit price. Another choice could be buying the generic store brand over the name brand. You can even stick to the weekly ads, but again, be mindful of “spaving”. Sometimes I’ve found that even the slightest change can make a big difference.

Essentially inflation is a hot topic, and these proven marketing tactics are being used time and time again, impacting buyers. Bottom line, consumers need to be aware when purchasing.

If you’re curious about what the Federal Reserve has to say about inflation, the detailed notes are published here after each meeting – https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

If you want to talk to an advisor about your retirement plan, schedule a free consultation.

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Sources

1. FoxBusiness.com, May 19, 2024. “Finance expert sounds alarm over ‘spaving’ trend: An old ‘trap’ with a new name hitting your wallet.”
2. NerdWallet.com, May 15, 2024. “Food Prices Stayed Flat in April. Groceries Actually Declined.”
3. CNBC.com, May 22, 2024. “Why Target and McDonald’s are cutting prices and offering deals.”

4. https://www.businessinsider.com/shrinkflation-grocery-stores-pringles-cereal-candy-bars-chocolate-toilet-paper-cadbury-2021-7#bounty-triples-reduced-sheet-count-from-165-sheets-to-147-procter-and-gamble-told-quartz-that-its-still-a-better-deal-than-before-because-the-sheets-are-more-absorbent-18

5. https://www.nytimes.com/2024/03/01/business/economy/shrinkflation-groceries.html

6. https://www.reddit.com/r/Costco/comments/10q72ad/kirkland_toilet_paper_quality_question/

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