Here’s a simple explanation of inflation: a general increase in prices and fall in the purchasing value of money. Inflation corresponds to a reduction in purchasing power.
With the costs of gas, food and hundreds of other things on the rise, Americans are rethinking how they read every price tag. Our definition of cheap or expensive has changed. Inflation has turned money into a foreign language.
A recent posting by the Bureau of Labor Statistics stated Americans trimmed spending and adjusted their monthly budgets as the annual inflation rate rose to a four-decade high of 8.5% in March. Financial advisers say this recalibration can’t be a one-time effort. Knowing exactly what you are willing to pay for something and examining what is a necessity should be a constant effort.
Scott Rick, associate professor of marketing at the University of Michigan, who studies financial decision-making, said, “You have to update and roll with it. There’s no going back to the way things were.”
The sudden inability to know how to read price tags is especially disorienting to those under age 40, who have never experienced anything like today’s inflation rate. Understanding how we think about prices can help us adapt to inflation, Rick said.
What we judge to be a good, or fair, price is influenced by our individual background, income and our mental transaction histories.
Our understanding of price tags is disproportionately shaped by the items that make up our daily budget. Researchers found when it comes to gauging inflation expectations, shoppers typically look at the usual items they buy. It might be the price at the gas pump, or the cost of milk or eggs.
As a result, consumers are growing savvy to shrinkflation, the practice of downsizing the contents of a product rather than raising prices.
Companies are getting creative, so what must we as consumers do to adjust to inflation? Start by researching the cost of a particular item online or ask someone what they paid for an item and from where they purchased them. Do comparison shopping. Is it less costly to use a store brand? Is the quality the same?
– Joan Koczor is a senior advocate and a member of the Age-Friendly Maricopa Advisory Board.
– Source: The Wall Street Journal
– This column was first published in the July edition of InMaricopa magazine.