How Panflation Can Hurt Your Finances

Every once in a while, I stumble upon a word describing something that is stuck in my head. You may not have heard of it, but I swear it’s a real thing and this time you not only are going to hear me say it, you are going to be living it! The word is “panflation”!

Hands holding money losing value which is what happens during pandemic inflation, or panflation

What is it? Panflation was a term first coined in 2012 by The Economist, an international weekly newspaper printed in London, England, and originally it referred to the inflation of everything. That was before the COVID-19 pandemic.

Examples included women’s clothes actually changing or “inflating” sizes so women could feel better if they can easily fit into a smaller label size (fashion retailers have been adjusting the size numbers now for years) so that a size 10 is really a size 14. Remarkable, right?

Then there is “grade inflation”. An A grade today is equivalent to a C grade of the 1980s. “Food inflation” when it comes to portion sizes which seem now to be enormous. And even “job title inflation” you know like SVPCOJARWH which stands for Senior Vice President and Chief Officer of the Division of Junior Accounting Reserves in the Western Hemisphere sort of titles.

But for my use, I am expanding its newest definition. It’s pretty simple really. I’m using it as the way to describe what we are currently living through. It’s the combination of what we have suffered through with the worldwide COVID-19 pandemic and the resultant rise in the cost of everything—the inflation cycle we are now experiencing. So, yeah, combine “pandemic” and “inflation” and you have: “panflation”!

It Just Had to Happen

I know there are no prizes being handed out for it, but I have been writing about the inflation factor that the pandemic is causing now for over eight months and it’s only recently that the rest of the world is catching up to recognizing it.

My first post, “Inflation Looms as 2021 Draws Near and Few Are Talking About It”, touches on some of the facts and reasons for it. Panflation got little response back then, but that has now changed and everyone from Yahoo to Google, from Bloomberg to CNN and from MSNBC to Fox News is talking about the inflation that you are seeing out there. The war is on and the battles lines are drawn. So where do you stand in the Panflation 2021 battle?

As Retail Prices Climb, a Rose by Any Other Name Is Still a Rose

Recently, Bloomberg published the truth about Panflation 2021. Did you see it? The amazing thing about it all is how much business itself is trying to deny it all and actually make you think it’s all just an illusion. The companies seem to think that if they try not to say it out loud, it just isn’t true.

Here’s part of what Bloomberg said on June 8th: “From clothing to cereal to trash bags, prices are going up fast. But many companies aren’t saying that, at least not in language most shoppers would recognize.

As Shakespeare wrote about a rose, inflation or Panflation 2021 is just the same. You can call it anything you like, it’s still what it is: higher costs to you the consumer and maybe even higher profits for those who make what you buy.

So What New Words Are the Manufacturers Using?

If you ask Procter & Gamble Co., it’s not raising prices, it’s “taking pricing.” Rival Unilever, known for its soaps and Axe body spray, says it’s been “very active with their pricing.” But the grand prize for creativity and yes, gall, when it comes to speaking garbage about Panflation has to go to home-improvement retailer Lowe’s whose finance chief told investors this past week that it was “elevating our pricing ecosystem.”

I think Bloomberg hit it on the head when it said that companies are now doing “rhetorical backflips” to avoid saying what they’re actually doing: raising prices. But the truth is you can’t hide the truth.

The makers and sellers of consumer staples are now notching up their prices thanks to the pandemic and are now under pressure to maintain that performance even as costs go up, labor markets tighten, and they face extremely tough comparisons with last year’s growth.

Need more examples? How about French yogurt maker Danone who says “we have managed to pass on some prices” when inflation accelerated.

Campbell Soup Co. said in June that it expects “pricing actions” to take hold early in the next fiscal year. It goes on and on.

Cereal king General Mills Inc. jargon includes the phrase “strategic revenue management” and “holistic margin management”, which is not language you’d ever find on the back of any cereal box.

Corporate doublespeak is not new, of course. For years, layoffs have been referred to as “right-sizing”, “headcount rationalization”, or “reductions in force”. And businesses say they provide “synergy” and “solutions”, not products or services. It’s all been done before and here we go again.

And Then There Are Package Sizes

Another sneaky method by manufacturers is to keep the price of product stable but reduce the package size slightly thereby increasing the price per ounce. Think about it. Just a small size reduction in any package size can mean bigger profits for a company. That’s even more tempting right now and is being implemented, so look carefully at what you are buying and its unit pricing.

Panflation Is Surging But It’s Not Stopping Buyers

The U.S. Bureau of Labor Statistics reported that American consumers absorbed another surge in prices in May, 5% over the past year, the biggest 12-month inflation spike since 2008. The rise in consumer prices that the Labor Department reported reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy. The price of new and used cars is climbing. So is the price of gasoline.

Increased consumer appetite is bumping up against a shortage of supply.

As consumers increasingly venture away from home, demand has spread from manufactured goods to services like airline fares along with restaurant meals and hotel prices with rising inflation in those areas too.

The Labor Department’s own version of sticker shock on the rise in consumer prices means that you should be getting ready to feel that pain now.

Have you lived the gasoline price rise? This month, gasoline prices are $1.00 per gallon more than last year at this time and have topped $3.00 a gallon in many states.

Buying a car and gasoline has gotten more expensive and that means when you pull up to a drive-through at your favorite fast food place, you can expect to pay more for your burger or burrito. After all, they get their supplies trucked in from everywhere and that takes gasoline.

Prices are climbing for all kinds of things as we rebound from the pandemic recession. But so far, sticker shock is not stopping buyers as reported this week.

There are real reasons why higher prices are not deterring you and everyone we know from getting out there and buying first, looking at prices second. Pent up demand is certainly the big one.

The Rise in Wages

Another factor is the clamor and response to rising wages. If you thought that getting an increase in the minimum wage didn’t mean rising prices for goods and services, I have some oceanfront land in Arizona I’d like to sell you. Someone has to pay for those wage increases and it’s like going to be us!

By the way, no matter what reason you use to go out and shop without thought, it’s a big mistake and you will eventually suffer because of it. Your tacit or active approval of these companies in raising prices now will come back to haunt your wallet soon!

We’ll get the latest temperature check on Panflation when the Labor Department releases the consumer price index for June soon. But for now, more people are out doing what comes naturally and was so sorely missed that shopping and spending have blinders on and the rising prices may slip under the radar. Don’t be shocked when June’s numbers go through the roof.

What the “Big Voices” Are Saying

I wrote back on May 4, 2021, “Warning: What Warren Buffett Says About Rising Inflation Matters”. I wasn’t kidding. In it, Buffet said that the economy is really red-hot. When Warren Buffett speaks, we should listen. The billionaire said that serious levels of inflation are starting to take hold as the U.S. economy roars back from the COVID-19 downturn.

“We are seeing substantial inflation,” Buffett said at the Berkshire Hathaway annual shareholder meeting. “We are raising prices. People are raising prices to us, and it’s being accepted.” Buffett knows about such things.

Up until now, the belief is that the current spike in prices will be temporary. So far, this debate has largely been missing three things: what the best forecasters are saying, what’s happening in other countries, and steps that can be taken to fix problems in the supply chain.

Treasury Secretary Janet Yellen’s statement a few weeks ago was “We will watch this very carefully and try to address issues that arise if it turns out to be necessary” sounds like someone saying “la, la, la, la” and not looking the facts in the face to me.

The scariest part of it all is that even with these results, they are not expected to deter shoppers’ spending or scare investors off as inflation increases.

Final Thoughts

I don’t know anyone who actually enjoys paying more for things and now is no time to start if you suffered financially during the pandemic (and who didn’t in some way). Now is not a good time to start spending without thought and a budget and a plan. You are in a war and you may not even realize it because you want to return to being the consumer you once were and loved. Don’t fall through the floor and wind up in a pile of debt that can be avoided.

Have you seen prices climbing? Have you done some planning and budgeting to fight it? What does Panflation mean to you and your family?

7 Comments

  1. Penny

    I had hoped to see more insight on what to do (versus simply “don’t spend money and go into debt”). I don’t get to not replace my vehicle when it becomes un-driveable (and the cost to repair exceeds the value). I don’t get to buy less food for my kiddos. And it feels morally wrong to simply buy what costs the very least, at the absence of fresh fruit, milk, protein.

    I wonder how to revise my budget for a conservative inflation-nation season (+15% to non-fixed-rate line items?). I wonder whether I should be looking at ways to increase our emergency fund (by how much? 15%?). What are some quick-ish ways to grow my emergency fund? Should I skip retirement savings for a time? Look forward to future posts from you 🙂

    1. Penny, I apologize for taking so long to respond to you. Fighting panflation really doesn’t have a concise answer on the “what to do” front. The point of my post was to raise the “red flag” of warning and hopefully make more people aware so that they can defend themselves better by not wasting their money wherever they could. We sometimes get too comfortable with our shopping habits and we need to adjust them in order to save more.

      You did ask some great questions and you should always do that. One answer I will give you is that you should never skip your retirement plan contributions, even when money gets tight and things are difficult. The pandemic troubles will end but your retirement will still be on your time horizon waiting patiently for you.

      You may find some helpful tips in my previous blog posts, particularly the ones in the Frugality section. I hope you’ll browse through them. If you’re already saving wherever you can, then you may consider if there’s a way you could earn more (like with a side hustle or part time job).

      I really do appreiate your thoughtful comments.

  2. bill

    Inflation has been very low for years. Average out the 5% rise in the last year – over the last 10 years inflation is still very low. (FYI less than 2%). So the worry is that IN THE FUTURE inflation will get out of control. As no one has any idea what will happen in the future, getting anxious about one year of 5% inflation is useless. Want something to worry about in the future? How about North Korea explodes an EMP above the West Coast of the USA. You can worry about that one for the next 10 years and never need anything else to worry about. It will fill all of your worry needs.

    1. Bill, you are correct when you say inflation has been around 2% every year during the past 10 years. That in essence means that $1.00 in 2010 now requires $1.28 to buy the same things today. Have wages gone up 28% in that time period? Wages are basically flat since 2010 when adjusted for inflation. But that wasn’t the point of my post.

      Inflation is real right now as business tries to make up for its losses of the past 18 months. The fact that we are in an economic recovery isn’t going to make your personal finances better as it occurs unless you develop the smarts and skills to fight it (which was the point I was making).

      I spent over 40 years managing businesses both large and small and I can promise you that when salaries rise, cost of goods and retail prices will also. Salaries are the only thing that an employer can control so it’s either one of two choices: cut the number of employees to keep payroll on target or raise the price of goods or services to offset payroll increases. Either way means that this cycle of inflation is NOT transitory and will NOT go back to a level that was pre-pandemic.

      When you say no one knows what will happen in the future, maybe I am an exception. Here’s what I predict. Prices will go up just as they have done since the first rock was sold to a willing caveman buyer thousands of years ago. Wages will also go up only at just a tad slower than prices so good luck.

  3. Rick

    If the Orange man was still in office you could be darn sure the word INFLATION would be front and center and we would all know who to blame, It is so sad and amazing to see how in a few months the rhetoric of the news cycle has changed so much from pointing out every little flaw and misspoke word to sweeping everything under the rug and acting like nothing is happening. We are screwed.

    1. Rick, I wasn’t blaming anyone or any administration for the inflation cycle we are seeing right now. I was simply pointing out that as business recovers and salaries and payrolls increase, businesses will raise prices and YOU will suffer from their recovery. If you want to blame someone, blame consumers who are right now buying and spending as if price doesn’t matter. You will see that care become very real over the next few months as we approach 2022.

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