This is not meant to be a political post, however when you talk about the economy - even in general terms - it's bound to be political This is meant to be an educated opinion piece and I am very aware of my own confirmation bias. So I worked hard to keep informational and interesting.
Skimpfation. If you have not heard of it yet, wait. It's the newest buzzword in the media and it describes an economic condition where services are not where or what they used to be; but you are still paying the same price (or a slightly higher price) for the same product or service. It's always been part of "inflation" but is more noticeable now as store shelves are empty and wait times become longer.
That's Skimpfation. It differs slightly from "downsizing" or the similar term "Shrinkflation" - where you get slightly less product for the same price - in that skimpfation refers to services received as well as actual product. Right now the media is all about "shrinkflation" because it's something easier to explain and makes for easy graphics and real world examples..
I'm not an economist but after working in the financial and banking fields for over twenty five years, and being a small business owner since 2008, you pick up on some things. Frankly this really is an amazing time to be alive, as we are watching the development of an economic crisis we have never faced before. It's also the possible start of a whole new economic model.
First however, we have to step back in time to the far distant past of two or three years ago into Pre-COVID times. Most business operated on the "Just in Time Production" model. Sometimes referred to "Lean Production." An item would be produced to meet an order. A company would make an educated guess that they would need X amount of steel lets say.
That X amount would arrive on a planned schedule and go straight into production. The benefits of this are simple. You have less cost for storage and waste. You productivity goes up as does your profit because you are controlling "down time." The disadvantage of this model is any issue with supply chain would disrupt production. It also created a stressful workplace.
The company could also hire temporary or contract workers depending on their needs as well, creating a "Gig economy."
Like it or not, borders don't really matter anymore. Our world is interdependent on trade. So if country A took a major hit due to COVID, it affects countries B through Z. Normally a minor interruption in the supply chain was an inconvenience, but for the last year and a half we have had virtually no production at all. There are simply no reserves. Our supply chain has been broken.
Production did start to turn around at the beginning of this year, and now we hear horror stories of ships basically waiting in line awaiting for an open dock to unload from. While there is some truth to this, most people don't take into consideration that other ports are either ill equipped to handle cargo shipments or are not part of a major hub. Los Angeles for example has access to major highways and airports to ship goods around the country at a much higher concentration than say, Seattle..
Americans are also buying more stuff after the pandemic and when you have increased demand and production lagging behind, that creates inflation...and delays.
Which forces prices up. Since our world is so interdependent, that is driving gas prices up too. To ramp up production under the old supply and demand model you would simply expand your workforce, however due to automation and other issues most of the workforce needs to be trained or retrained in a new position - this takes time. There is also pressure on companies to pay higher wages, and many companies either refuse to, or cannot afford to, pay those wages.
To help combat rising costs, we see various places closing earlier than they used to, or reducing services to a bare minimum. We this particularly in restaurants and other service industries.
The "Gig Economy" of the last decade or so also played a role in the current situation we find ourselves in. Frankly the "Gig Economy" created a very flexible workforce that can do several jobs well, instead of developing a dedicated workforce of specialists as was the traditional work model. These workers also understand their worth in this market and are able to demand things like higher wages and better benefit packages.
Unions are making a bit of a comeback as workers flex their muscles in this new economy.
Now, sadly, this is a perfect storm of issues that frankly no political party is going to be able to solve. Traditional "mom and pop" operations are going to die off and rural/country living is going to only become harder as we adjust to a more tech driven economy.
The truth is this: I've no
clue how we get out of this mess, but there are some common sense things that
we can do to help weather the storm.
1) Buy in bulk. - part of shrinkflation is "downsizing." What used to be in a 16 oz box is now in a 14 oz box. You are better off buying in bulk and saving those goods for later. Plus, once an item is "downsized" it will probably stay that way. That's the nice thing about canning and gardening if you can do it, not only is it better for your health and environment, but you control the size of what you store..
2) Pay off
your debts ASAP - if you have any debt with a variable rate,those rates
will not stay low forever. There is a direct correlation between inflation and interest rates.
You will be amazed at the money you save in the long run. Here's a simple calculator for
you to see how much money you can actually save in the long run. If you can, move your funds from a variable rate card to a fixed rate card.
3) Prepare for the long haul. While this state is only temporary, you can expect it to last for at least another 6 months to a year. The good and services that we took for granted a few years ago may never come back.
What does the future hold? I wish I knew.
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