A month ago, as inflation talk claimed more investor attention, we revived our in-house inflation index — the Guild Basic Needs Index — which was designed as a simple and straightforward snapshot of the on-the-ground inflation picture faced by consumers, not gamed or massaged by statistical sleight of hand. (If you are new to the GBNI, you can find a more detailed description here.)
Of course, inflation is even more a topic of conversation a month later, with headlines about sky-high lumber prices denting new home affordability, Charlie Munger and Warren Buffett holding forth on the inflation pressures seen by the companies they own, nascent labor shortages appearing in various places, and Treasury Secretary Janet Yellen musing on how an overheating economy might require Fed rate hikes.
Anecdotally, we and others have noted the rise of “shrinkflation” — consumer products shrinking in size while the price remains the same. We noticed that a bagel at our local deli fits much more comfortably in the hand this spring (now wrapped in covid-proof plastic) while the price remains the same as last year. Jars of Nutella in the UK are going from 400 grams to 350 grams — amounting to a 14% price hike. Costco reduced its paper towel count by 20 while holding price the same. This can be good for investors if companies can intelligently use the trend to improve margins — but it’s not as good for consumers.
The most recent data for the Guild Basic Needs Index corroborates this experience, showing a 19.6% year-on-year change for our basic consumer basket.
And as we noted a month ago, that year-on-year change remains at a cycle high.
The question on many minds: When Fed and Treasury officials say they believe that inflation will be “transitory,” what exactly do they mean? Certainly, at some point, our year-on-year gauge will stop accelerating so drastically. But will consumer products firms lower the prices they have just raised? Will Nutella jars on British breakfast tables go back to 400 grams? Will Costco add 20 sheets back to their paper towel rolls? Will our daily bagel weigh in heavier? Time will tell, but color us doubtful.
