What it is and how you are already paying for it | MCU Times

What it is and how you are already paying for it

A sector’s shadow inflation takes place is travel. Travelers face more restrictions and receive fewer amenities – without necessarily seeing a price reduction. (Photo: Getty Images)

(NEXSTAR) – Inflation means that the price of almost everything and everything is rising right now. This is evident at the gas station and the grocery store. But there is also a more sneaky force at play – a force economists call shadow inflation.

Shadow inflation refers to a type of inflation that is much harder to capture in the consumer price index. This is because the price of a product or service may remain the same, but the quality has dropped.

Say you’re checking into a hotel, explains Daniil Manaenkov, an economics researcher at the University of Michigan. “You used to walk into a hotel, be greeted, chat with people at the front desk, every morning you got a decent sized continental breakfast, you sat in the lobby and observed other guests.

“Now, if you check in, there may be a long queue, there is just one agent overloaded, your breakfast will have limited selection. You will be sitting alone with the nearest table a few meters away from you.”

The hotel may also have dropped out of daily housekeeping due to COVID risk or staffing issues (or both). And maybe there is limited access to the gym, so you need to sign up for an appointment instead of just showing up. And maybe because of social distance, you stand six feet apart at the check-in counter, and now the queue is snaking outside where it’s cold and rainy.

These small changes add up and they are hard to measure. But at the end of the day, you get fewer facilities during your stay – even if the room price has not changed. It’s shadow inflation.

The same thing is happening at many restaurants in the COVID era. Menu prices may have increased or remained the same, but now guests are asked to bus their own tables or order via a QR code instead of with a server.

“Most of these characteristics are not something that our statistical agencies actively measure, so it’s not going to show up, but you personally want to know that you’re getting a service of inferior quality,” Manaenkov said.

There’s also another sneaky type of inflation going on right now, called “shrinkflation.” This is when a manufacturer instead of raising prices makes the product smaller. So a box of cereals could go from 19.3 ounces to 18.1 – as was the case with General Mill’s cereals this year – but the price remains the same and customers are often nonetheless wiser.

Shadow inflation, shrink inflation and ordinary old inflation together mean your money just does not go as far this year as it did last year. Will things turn the course? If it happens, it will happen slowly, Manaenkov explained.

“Consumption patterns are sticky,” he said, meaning people expect what they’ve always had, like a server taking their order when sitting in a cozy restaurant. But COVID forced us to change our ways and adapt expectations and habits quickly.

“Now that we’ve gone through that phase of breaking preferences, I think it will not be necessary to go back – at least for many people – because people have accepted the new format,” Manaenkov said. If customers demand more facilities for their dollars and there is enough competition out there, the market may shift back slowly – but that is still unknown.


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