Everyone is talking about inflation these days. As the world emerges from the pandemic, consumer price inflation (CPI) has risen to 4.2% in the UK, nearly double the Bank of England’s target as demand for goods and energy outstrips supply. This is a problem that has caused higher market volatility because investors speculate reduced government quantitative easing and higher interest rates.
The Omicron variant of the Covid virus may exacerbate this problem and the Chair of the Federal Reserve in the US is now downplaying the theory that the current spike of inflation is transitory. Of course while inflation is bad for some and good for others, it is worth considering other impacts of inflation on charities:
Deflation is the opposite of inflation and starts when people are waiting for prices to go down, so as a result they spend less money while they wait for things to get cheaper. This is not good for the economy as people stop investing, leading to unemployment and at worst a depression.
Stagflation occurs when there is slow economic growth and relatively high unemployment at a time of rising prices for goods. Simply, when the economy stagnates, there is price inflation. This is also not a good outcome.
The final two concepts are less commonly used economic terms but we now live with them in everyday life. Anyone who has eaten a Toblerone chocolate bar or a packet of Maltesers will be familiar with the following:
Shrinkflation, when the price stays the same, but the amount you get goes down. For chocolate treats, while the manufacturers may righteously say they are reducing the sugar content in products, with rising costs and increasing competition, shrinkflation was already happening before the coronavirus pandemic. This phenomenon is set to get worse because of the current rising labour costs and increasing prices of ingredients with soaring demand. Shrinkflation is occurring to many products.
This issue is not restricted to goods, but also occurs in services:
Skimpflation happens when instead of simply raising prices, companies skimp on the services they provide. This has been a growing problem during the pandemic, excused by remote working and restrictions on normal working practices. Cynically, certain service providers have taken this as an easy way to cut costs while maintaining the prices they charge for their services but customers suffer from poor outcomes.
As a charity you cannot avoid inflation and no one knows if we might get deflation or even stagflation. As a charity, you certainly do not want to suffer from skimpflation from the providers who you rely on. At Yoke, we spend time to analyse these issues and help our clients during the trying economic times. Please contact Yoke if you need assistance.