How Inflation and Shrinkflation Affects Families, Economy, and Being a Prepper

When infla­tion is ris­ing, a lot of peo­ple feel the pinch in their wal­lets. How­ev­er, infla­tion is not just ris­ing prices mak­ing every­thing you have less impres­sive. Infla­tion can be mea­sured in many dif­fer­ent ways.

Income infla­tion mea­sures how fast prices are ris­ing com­pared to income growth per work­er and fam­i­ly. For exam­ple, if infla­tion is 2%, but employ­ees get a 3% raise each year, your pur­chas­ing pow­er is slow­ly being erod­ed away. Using this mea­sure­ment infla­tion aver­aged 1.9% annu­al­ly from 1991–2005 while medi­an house­hold incomes rose 38%.

Source: Bureau of Labor Sta­tis­tics — Medi­an Week­ly Earn­ings and Infla­tion

• https://www.bls.gov/opub/ted/2021/real-average-weekly-earnings-down‑2–2‑percent-from-may-2020-to-may-2021.htm)

In the 1970s infla­tion was as high as 11% and real wages fell from 1945 to 1980, result­ing in a net loss for Amer­i­can fam­i­lies, espe­cial­ly those who were not finan­cial­ly afflu­ent.

So What is Inflation?

Infla­tion is a rise in the prices of ALL prod­ucts, even if one spe­cif­ic prod­uct ris­es faster than infla­tion (aka hyper­in­fla­tion). For exam­ple, hous­ing infla­tion has been ris­ing much slow­er than infla­tion but the aver­age price of homes sold is high­er today than it was dur­ing the mort­gage cri­sis because peo­ple can’t afford hous­es and rents go up (sup­ply and demand.

Infla­tion is not just high­er prices with infla­tion, it’s a reduc­tion in the val­ue of mon­ey over time. Infla­tion is caused by too much mon­ey in cir­cu­la­tion chas­ing after too few goods. As infla­tion ris­es, peo­ple hold onto their mon­ey for dear life because they know infla­tion will eat away at its val­ue and want to spend it before infla­tion eats away any­more. This caus­es a reces­sion, where peo­ple stop buy­ing things and all the pro­duc­ers must fire work­ers to cut costs (reces­sion:

• https://en.wikipedia.org/wiki/Recession#United_States)

What does this have to do with prep­ping? A lot… Infla­tion and reces­sions hurt peo­ple and the econ­o­my who don’t have sav­ings to fall back on in tough times.

What about infla­tion’s effects on shrink­fla­tion? Shrink­fla­tion may be a cool sound­ing word, but it has a pret­ty harsh effect: infla­tion with­out an increase in pay usu­al­ly leads to reces­sion or stag­na­tion (where infla­tion is high­er than your income):

• http://www.investopedia.com/terms/s/shrinkflation.asp

“This means that when infla­tion ris­es, pro­duc­ers sim­ply reduce the amount of prod­uct they sell, pass­ing the cost onto con­sumers while main­tain­ing the same rev­enue and prof­it mar­gin.”

So what does this mean for you? Today (Jan­u­ary 2022) we have an effec­tive infla­tion­ary rate of 7%, and that might be high­er next month. If infla­tion reach­es 10% and wages do not rise, infla­tion erodes pur­chas­ing pow­er by 10% and if infla­tion reach­es 12%, infla­tion eats away at pur­chas­ing pow­er by 12%. The math is pret­ty sim­ple.

This all means that for a prep­per, infla­tion is a dou­ble-edged sword: infla­tion may help you find MORE things to stock up on because prices will rise, but infla­tion reduces your buy­ing pow­er. Since you have an inter­est in being able to buy more items each month with the same amount of mon­ey as before infla­tion (aka get­ting rich­er), infla­tion can be help­ful over time.

Now, How About Shrinkflation?

Shrink­fla­tion is sim­ple: infla­tion with­out wage increas­es or at least wage increas­es low­er than infla­tion. This means that what­ev­er prod­uct you are look­ing for to stock­pile will go up in price like nor­mal BUT the amount of prod­uct you get will be less, some­times sig­nif­i­cant­ly.

What does infla­tion have to do with prep­ping? If infla­tion hits, prices go up AND the amounts go down. This is exact­ly what hap­pened in Venezuela, where infla­tion was so high that peo­ple could­n’t afford sim­ple things like bread or meat. A FULLY stocked pantry might not be enough if infla­tion reach­es 10% across the board.

“But infla­tion is infla­tion, and infla­tion is inher­ent­ly bad. Hyper­in­fla­tion is infla­tion that goes UP dra­mat­i­cal­ly, and dra­mat­i­cal­ly quick­ly. As in the num­ber of infla­tion soars, which it does when there aren’t ade­quate goods to buy with your cur­ren­cy. The Venezue­lan Boli­var has been los­ing val­ue pret­ty much every sin­gle week for two years now.”

Why are prices going up? Right now infla­tion hap­pens because there are too many peo­ple chas­ing after too few jobs, hous­es, cars, etc. Shrink­fla­tion can hap­pen due to over­pro­duc­tion of a par­tic­u­lar good or ser­vice OR because items are being man­u­fac­tured using cheap­er mate­ri­als or process­es and pack­aged in small­er amounts per serving/package (i.e. dif­fer­ent ingre­di­ents) AND infla­tion AND shrink­fla­tion are hap­pen­ing at the same time. It’s a dou­ble-edged sword for the aver­age per­son.

For exam­ple, choco­late can­dy bars have few­er pieces, are thin­ner, and are made of ingre­di­ents that are less expen­sive today than they did 10 years ago (shrink­fla­tion), infla­tion in the US is high (i.e. 5–6% in 2016) and infla­tion is even high­er in coastal South Amer­i­can nations like Venezuela (3000+%).

This means that prep­pers need to be smart when try­ing to stock up on items because infla­tion, shrink­fla­tion, AND ris­ing prices will make it hard­er for both prep­pers and non-prep­pers to buy the same items you are buy­ing. This means there will be short­ages in stores, includ­ing but not lim­it­ed to at your local ware­house store where peo­ple flock when they feel infla­tion com­ing.

“Ware­house clubs like Cost­co Whole­sale Corp., BJ’s Whole­sale Club Inc. and Sam’s Club have thrived dur­ing infla­tion­ary times because shop­pers are drawn to the cheap­er prices on a wide range of bulk items.” Although, I have per­son­al­ly noticed prices going up $2.00 here, and $4.00 there at my local Cost­co

The infla­tion rate is going up in most places, not just South Amer­i­can coun­tries.

“Infla­tion Cal­cu­la­tor — This infla­tion cal­cu­la­tor uses the Con­sumer Price Index (CPI) data pro­vid­ed by the Bureau of Labor Sta­tis­tics.”

• http://www.westegg.com/inflation/

In order to know infla­tion is hap­pen­ing, you have to watch out for key­words in the news about infla­tion: price hikes, infla­tion fears, ear­ly signs of infla­tion, etc. In 2017 there were sev­er­al arti­cles writ­ten indi­cat­ing how infla­tion was start­ing to rear its ugly head:

“TheStreet’s Action Alerts Plus Char­i­ta­ble Trust Port­fo­lio Man­ag­er Jim Cramer said, infla­tion is going to start tak­ing a toll on our wal­lets very soon.” Although, I feel like this was biased a bit for the day when it was pub­lished (try­ing to keep the pol­i­tics out of the blog post)…

What hap­pens when infla­tion hits? When infla­tion starts hit­ting hard, peo­ple stop buy­ing cer­tain items alto­geth­er and the prices for those items may drop due to infla­tion AND because there are few­er buy­ers.

In Octo­ber of 2016 arti­cles about gas being cheap­er since 1980 start­ed pop­ping up accord­ing to a Fox Busi­ness arti­cle… How­ev­er, and con­verse­ly, we all know that we were pro­duc­ing oil at an accel­er­at­ed rate domes­ti­cal­ly to cre­ate inde­pen­dence, and a busi­ness mod­el of export­ing to oth­er coun­tries, ben­e­fit­ing the Unit­ed States as a whole.

“The infla­tion rate is up 7% in the past year alone and we haven’t seen infla­tion like this since 1989.”

Gas prices, which direct­ly affect gro­cery store sales (70% of sales are food), had been drop­ping for months. That’s because infla­tion had­n’t caught up to gas yet, but it soon did.

Head­ing into Novem­ber 2016, infla­tion was start­ing to hit and head­lines read “Infla­tion — the silent killer”. This means infla­tion affect­ed peo­ple buy­ing habits AND there was a loss in val­ue of the US Dol­lar.

What inflation does to you… Remember, inflation is bad.

“If your income does­n’t go up at least as much as infla­tion, you can quick­ly find your­self unable to afford even the most basic neces­si­ties.”

This means that infla­tion will cause gro­ceries and oth­er non-lux­u­ry items to cost more than they did before infla­tion start­ed hap­pen­ing. Let’s say infla­tion is 10% per year. If your salary only goes up 8% each year, then you are actu­al­ly LOSING 2% worth of buy­ing pow­er each year because infla­tion increased but your salary did­n’t increase enough accord­ing to what the infla­tion rate was.

The same thing hap­pens if there is defla­tion BUT your salary stays the same. This means your buy­ing pow­er goes up because infla­tion is low­er than your salary.

Don’t be a vic­tim to infla­tion or defla­tion, learn what infla­tion and defla­tion are, how they affect you, and what infla­tion does to the econ­o­my.

Deflation

Defla­tion isn’t as bad as infla­tion Though infla­tion is con­sid­ered “bad” for the econ­o­my, defla­tion can actu­al­ly cause peo­ple to hoard items, mean­ing sup­ply will not meet demand which could lead to short­ages. i.e. the great toi­let paper and paper tow­el short­age of 2020?

In ear­ly 2017 news arti­cles were pop­ping up about egg prices drop­ping 80% due to an over­sup­ply of eggs. This meant egg prices dropped but…

“The U.S. is suf­fer­ing a mas­sive egg glut that has sent prices tum­bling to record lows, and the worst may be yet to come.”

The prices had dropped because infla­tion has­n’t hit eggs just yet, but price infla­tion will inevitably hap­pen as infla­tion ALWAYS hap­pens a bit every month since the new admin­is­tra­tion took office in 2020.

Product Shortages

Infla­tion can cause short­ages If infla­tion hits an item par­tic­u­lar­ly hard, scarci­ty of the item could occur due to infla­tion AND peo­ple hoard­ing items due to infla­tion. A per­fect exam­ple of this is gold and sil­ver. Go to any web­site sell­ing gold and sil­ver today and you will find that they are in short sup­ply… Peo­ple are con­sum­ing pre­cious met­als, hedg­ing their bets.

Head­ing into mid-2016 arti­cles start­ed pop­ping up about how infla­tion and defla­tion were affect­ing the price of gold. Gold prices had been ris­ing since 2015 while infla­tion had­n’t real­ly caught up with gold just yet because infla­tion usu­al­ly hap­pens grad­u­al­ly while defla­tion can hap­pen rather quick­ly.

“If infla­tion starts hit­ting fast enough, it could cause a short­age in an item through hoard­ing because peo­ple want to get as much mon­ey out of their items before they lose val­ue.” We did see this as Covid-19 was hit­ting and lock­downs began. Peo­ple hoard­ed toi­let paper, paper tow­els and oth­er con­sum­ables that you would like­ly require if we were not allowed out of our homes due to a real pan­dem­ic or plague.

DF: Here’s a good arti­cle explain­ing infla­tion and defla­tion:

• https://www.thebalance.com/inflation-and-deflation-definition-causes-effects-3306106

IN: Here is anoth­er good arti­cle on infla­tion and defla­tion:

• https://www.investopedia.com/ask/answers/111414/what-difference-between-inflation-and-deflation.asp

Product Inflation

Prod­uct infla­tion is infla­tion that affects prod­ucts you buy so infla­tion can affect some­one buy­ing gro­ceries, but infla­tion can also affect the price of oth­er non-essen­tial items like cars, elec­tron­ics, etc.

What Inflation Does to Preppers

There are dif­fer­ent ways that infla­tion and defla­tion will affect prep­pers. For instance, prices for sil­ver could increase because sil­ver has many indus­tri­al uses which means if there’s more demand for sil­ver due to infla­tion AND sup­ply may not be able to meet the demand because of hoard­ing dur­ing times of infla­tion or an item inflation/shortage then prices for sil­ver will go up.

More impor­tant­ly, food costs have increased dra­mat­i­cal­ly. So, pur­chas­ing food for food stor­age, whether you dehy­drate your veg­eta­bles, can your meat, or buy freeze-dried, you will be spend­ing more. Spend your pen­nies wise­ly and stay vig­i­lant.