Shrinkflation

Red Baron remembers the time when the neologism stagflation, the combination of long-term inflation and a stagnant economy, was coined in the 1960s. Economists widely used it in the 1970s when the oil crisis caused this situation in many countries worldwide.

Now it sounds worse when economists talk about shrinkflation.

However, for Red Baron, it is not only packages containing less of a product so as not to frighten off consumers. Shrinkflation also means a shrinking economy still suffering from the corona epidemic is currently hit by the Ukrainian war and garnished with the climate crises. Raw materials are more expensive, and the production of goods is frequently stuttered due to broken supply chains. Altogether industry produces less at a higher price. Shortages, e.g., of energy and higher production costs, mean inflation. It is as high as 7.9% in Germany, with no end.

Many are unsettled and abstain from consuming non-essential agricultural products like strawberries, cherries, and asparagus. They eschew fancy restaurants and no longer go to concerts, etc., because consumers would like to be sure of settling their energy bills at the end of the month. Consumption is shrinking while inflation is galloping.

Up to now, Red Baron has felt inflation only marginally.

- My beloved Bengele bread increased from euro 3,20 to 3,30.

- I consume about 2300 kWh of electricity per year, and my provider told me that my annual bill will only be higher by euro 4,52 in the coming year.

- My car is mainly immobile in the underground car park of my apartment. So gas prices are not relevant for Red Baron.

- For public transport, I presently pay only 9 euros per month until in September, my regular monthly Regio ticket that I use a lot will again cost me 54 euros or a little bit more.

I fear the worse is still to come. Today an interest rate war started. Following the increase of 75 points by the Fed to fight inflation in the States, the Swiss National Bank followed today, raising their interest rate by 50 points, while the European Central Bank did not move.

As a consequence, the euro yesterday exchanged at 1.043 CHF. It can now be bought for only 1.014 CHF. This means more Swiss tourists in town who will, however, only partly compensate for the buying reluctance of native consumers.
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