Kerby Anderson

We find it difficult to clearly see inflation increasing in our world because of what could be called “the money illusion.” Steve Forbes and his co-authors talk about this in their new book on inflation.

We tend to misinterpret inflation’s distorted prices by believing that they reflect “real world” values. We like to believe the value of our house is increasing each year when often the value is increasing merely because the dollar is decreasing.

The dollar may be sliding on currency markets, but it doesn’t feel like that is what is taking place. In daily life, a dollar bill is still worth four quarters, or ten dimes, or twenty nickels. Nothing seems different until we start making comparisons.

One way we do see inflation is with shrinking products. A shrinking dollar often results in shrinking the size of products. You notice the size of a candy bar is less than you remember. The potato chip bag seems smaller. This phenomenon of “shrinkflation” is an attempt by producers to keep prices similar by reducing the size of the product.

But eventually, companies reach a limit to what they can do. The discount chain Dollar Tree discovered they could no longer sell products for just a dollar. For a while they were able to cope with inflation by using less expensive packaging. They tried to keep prices down by buying certain products in larger quantities. But you can only resist inflationary pressures for so long. The company had to raise prices.

We should be grateful that we don’t live in countries with hyperinflation, like Argentina, Iran, Lebanon, Venezuela, and Zimbabwe. But we need to ask political candidates this year what they propose we do to prevent us from becoming like one of those countries.