Plunging Commodities, Rising Retail Prices – What Gives?

By Lee Bellinger / August 11, 2015

Prices for raw commodities are down across the board. So why aren’t prices for most of the things you actually buy – beef, detergent, insurance, etc. – also on the decline?

Obamacare and other government-imposed costs on manufacturers, retailers, and service providers are a big part of the reason. When costs of doing business rise, those costs get passed on to consumers.

And when companies raise prices for their products, they often do so in disguised ways. For example, as the Wall Street Journal (June 12, 2015) reported, McCormick reduced the amount of black pepper contained in its standard tins from 4 ounces to 3 ounces. It didn’t reduce the price. In effect, McCormick increased what it charges per ounce of pepper.

Worse, McCormick concealed the move by using the same size containers as before. Critics of such practices call it “shrinkflation”; or “nonfunctional slack fill” – empty space where there used to be product.

Beware of these Vicious Sharks Loose in Your Supermarket Aisles

Manufacturers and retailers employ a lot of psychological tricks to try to get you to buy their products – particularly their highest-margin products. Your aim of getting the most product for your money is often at odds with their aim of maximizing profit. When possible, shop at stores that clearly mark the cost per ounce (or pound, yard, etc.) on their price labels.

Larger unit sizes almost always give you more product for your money than smaller ones. That’s why insidiously shrinking product sizes rather than raising prices modestly on existing unit sizes is such a disservice. The government itself conceals the actual rate of price increases experienced by consumers. Since the Clinton era, the Consumer Price Index (CPI) has been rigged with various adjustments and substitutions that understate real-world price levels.

This Hidden Gem Shouts Out “Danger!” to Your Family

Chapwood Investments produces an alternative inflation gauge called the Chapwood Index. The impetus for its creation is that “the government has been artificially deflating the CPI to keep figures as low as possible. The readings you see published today no longer represent the real out of pocket expenditures incurred by most Americans.”

Last year, the Chapwood Index showed consumer price levels in major American cities increasing at rates of 6.6% to 13.7%. That range is far above the CPI’s unrealistic inflation rate of less than 2%.

One way to stay a step ahead of inflation is to shop smart and buy in bulk whenever practical.

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