Ever wonder why official statistics on inflation are so low, about 4%, while your actual cost of living seems to go up much faster each year? Harper’s Magazine casts a little cold water on reality this month by exposing the fact that official U.S. government statistics on inflation and unemployment have been toyed with for years.
We thought of this this morning driving past a diesel pump in Danbury, Conn., where some poor soul had just poured $100 of fuel into her tank at $4.50 a gallon. U.S. “core inflation” stats do not include energy costs, housing, or food — you know, the major categories that eat up most of your monthly paycheck. If your outlay for home heating oil or air conditioning or groceries jumps to $1,500 a month, it won’t count in how the Feds follow inflation.
John Williams, an economist over at ShadowStats.com, watches these numbers games carefully and notes the real annual inflation rate is about 11%, if you toss in the cost of your mortgage, bread and milk. Unfortunately, there really is no way out of our math fakery, because a lot of things we consumers want — loans, jobs, low taxes — are tied to phony numbers. If federal stats say inflation is low, banks can lend money at lower interest rates, and your boss can hire more people because she doesn’t have to boost salaries as much every year. If unemployment rates are low, the cost of labor seems cheap, thus buoying stocks on Wall Street.
Your job and 401k depend on the fact that official economic stats are an illusion.
Marketers need to take heed, now, because even with fuzzy math inflation is edging up. High energy costs will eventually impact the prices of your goods (like farmers facing reduced demand for dairy due to $4 a gallon milk). One basic strategy is to decommoditize your offering. Rather than focus on price claims, rethink how you present value.
When customers get squeezed, they will make choices based on what provides the most return for their limited purchasing resources. You can’t control their resources, and you can’t stop the rising tide of out-of-whack prices — but you can increase your perceived value.
Update: Pallavi Gogoi at BusinessWeek gives scary examples of price creep in food, where American consumers spend one-seventh of their incomes. The cost of eggs is up 38% year over year. Flour +26%. Fryer chicken +23%. Cheddar cheese +27%. White bread +19%.