SAN ANTONIO – Over the last year, we have seen a wave of disruptions, from supply chain problems to labor shortages, but now we have stumbled into another economic symptom -- shadow inflation.
What is shadow inflation?
Shadow inflation is when consumers pay the same price for a good or service from one year to the next, but the quality or quantity has diminished. It can take many forms to help offset costs without alarming customers while also remaining competitive pricewise.
Let’s say you buy a cup of coffee for $5, but you have to pay extra for cream and sugar. This allows the vendor to charge a competitive price while also creating another form of profit. It also changes the experience of getting coffee.
Some of us may have simply expected the sugar and cream to be complimentary, but now it carries another decision on what we are willing to pay. Sometimes it’s more subtle and can take the form of a fee or surcharge.
“You just see it when you get your check. Right? All these extra hidden fees, they just slap on to keep the price normally lower, but the total price is higher,” said Dr. David Macpherson, an economics professor at Trinity University.
Shadow inflation affects national, local businesses
These kinds of changes can work for businesses if the consumer is still willing to pay. We saw something like this when major airlines started charging to check luggage around 2008. After some time, it simply became something for which more people were willing to pay.
Local small businesses are also being impacted by shadow inflation.
“The vendors that we get products from have added a 10% fee just across the board,” said Michael Davies, manager of El Taco.
Sometimes shadow inflation can take to form of a fuel fee or a shipping charge for business owners. These added fees have created added pressure for businesses, and that additional cost likely gets passed down the line to the consumer.
But no business survives without its employees. With competitive wage options available in San Antonio, Davies has also had to raise his starting wage to attract workers.
“We’ve raised our starting wage by $2 an hour, so (it’s) definitely increase in cost,” Davies said.
“More money, more problems.”
The question is how long the inflation cycle will continue and how much more we will need to pay for goods and services.
“The forecast they (the Fed) have ... keeps getting pushed back. So even the (Biden) administration now is saying it won’t get better until the middle of next year or later,” Macpherson said. “These supply chain issues are important, and they’re not going away quickly, and also all the spending has not gone through all the economy.”
Keep an eye on the bill as inflation continues throughout the U.S. economy.