Michael Eriksson's Blog

A Swede in Germany

Posts Tagged ‘economy

Inflation comparisons based on a receipt from 2020

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A weakness of my various writings on inflation is that I usually lack exact price comparisons. At an extreme, in [1], I noted that a certain brand and package of toilet paper was priced at 4.05 Euro, which was “more expensive than in the past”.

Today, I found an old receipt and the price of 2.86 Euro for what must be the same product. The receipt is from October 5th, 2020, to be compared with [1], published on January, 11th, 2023, or roughly 27 months later. This gives us a relative increase of 4.05/2.86 or roughly 42 percent in 27 months, and a yearly average of (4.05/2.86)^(12/27) or roughly 17 percent.

To this must be added that the inflation rate is unlikely to have been uniform, which could give us a single year of well above those 17 percent at some point.

Comparing with a receipt from yesterday, I only see two items in common with the 2020 receipt:*

*Note that both items are from house brands (Ja! resp. Rewe) and that the “average” German price level for comparable products is higher. The below “per year” values are a little higher based on 27 months, a little lower based on 29 months.

Chewing gum at 1.25 -> 1.49, for roughly 19 (overall) and 8 (per year) percent.

Pizza at 1.76 -> 2.19, for roughly 24 (overall) and 10 (per year) percent.

(In both cases with reservations for “shrinkflation” and other issues that I cannot detect based on the receipt.)

This is better and more in line with claimed* inflation, but “better” does not imply “good”, and we must not forget that these numbers could and should have been a lot smaller, and would have been so with more sensible politicians.

*One of my original motivations to write about inflation was the discrepancy between various official inflation measures and the actual price changes on my food purchases, combined with a suspicion that “cost of living”, in general, was affected more strongly than official inflation measures might lead us to believe. At the end of the day, “cost of living” is what really matters to most of us.

Excursion on prices ending with a “9”:
On yesterday’s receipt, 13-out-of-13 products had a price ending with a “9”. On the 2020 receipt, it was 1-out-of-10. What the implications of this might be is up for speculation, but my speculation would be that the store is holding back the current prices a little for reasons of psychology and that the “true” price of this-and-that might average another few cents more. Cf. parts of [2].


Written by michaeleriksson

March 21, 2023 at 12:29 pm

Suggestion for a new take on bank accounts / Follow-up: Some thoughts on bank failures

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Two semi-rhetorical food-for-thought questions as a follow-up to a recent text on bank failures:

With what right do banks touch the money of the customers, e.g. to lend to others, at all?

Given long periods of zero (and/or below inflation) interest rates and bank fees for having an account, why should the customers take the risk of keeping their money in a bank account, at all?

Related issues include how the customers and the banks might perceive a bank account (e.g. as respectively “where my money is kept” vs. “where we keep track of how much money we owe the customer”*) and how a bank account might differ from a safety deposit box (contrast keeping a certain sum in a bank account with keeping it, in cash, in a safety deposit box).

*With the additional complication that the bank’s (real or claimed) perception might vary depending on context or what happens to be convenient. For a similar issue, note [1] and how businesses view their offers as offers in many cases, but switch to the legal fiction (and utter idiocy) of mere “invitations to treat” when it suits them.

A better, fairer, and more transparent way to handle the issues would be to introduce two radically different types of accounts, of which the customer might pick the first, the second, or one of each:

The first amounts to a cross between a bank account and a digital version of a safety deposit box: The money is stored* in the account and remains the untouchable-by-anyone-else property of the customer. No matter how badly the bank might crash or how bad a financial crisis might be, the money is still there and accessible with very little notice, just as if it had been stored physically in safety deposit box. (Note that e.g. a governmental guarantee or bailout will not be relevant for these amounts, barring embezzlement or other extremes.) There is no interest and the bank takes a monthly/quarterly/yearly/whatnot fee for its related costs (which will be small in a competent implementation) and a reasonable, amount independent,** profit.

*Exactly how to understand resp. implement “stored” in the context of the digital is an interesting question, but not one important to the general idea.

**The service provided, risks taken, whatnot, by the bank would be unlikely to vary with the account balance. (An exception might arise when government regulations are unfortunate.) Similarly, the fee for a safety deposit box is not dependent on the value of what is stored. (There is a variation based on the size of the box, as e.g. providing a box of twice the basic size comes with the opportunity cost of foregoing two regular boxes that could be rented separately. This is not relevant for a bank account, however.)

The second is similar to today’s accounts, but with the provisions that no blanket* fees may be levied and that the interest rate must match or exceed the inflation rate (or some reasonable proxy/approximation/whatnot** thereof). In return, the bank is free to lend and spend in a manner similar to today. Whether and to what degree these amounts should be covered by e.g. the government is disputable, as the customer now, unlike before, is taking a deliberate and knowing risk by choosing this type of account over the former. (Some type of private insurance scheme, be it on the bank or customer level, might make sense, however.) We might even have restrictions on how much money might be withdrawn when.***

*E.g. for merely having an account. However, overdraft fees and other fees relating to extra costs and/or risks for the bank, caused by the customer, might still be relevant. (Similar additional fees might be relevant for the first type too, but with a lesser probability.)

**Exactly how to handle this in detail is a tricky question, e.g. because there are multiple measures that might be relevant and because pin-pointing what inflation took place at what time, to be compared with what the account balance was at the time in question, is very hard. The general idea, however, is that if I deposit an amount X today and let my money rest for, say, ten years, then I will still have (at least) an amount X present ten years from now in real terms. (Assuming that the bank remains healthy…) With an account of the first type, I would, in the same setup, have amount X (minus fees) in nominal terms.

***The more favorable the conditions of this and other types are for the bank, the higher the interest rate; the more favorable for the customer, the lower the interest rate. Note that similar trade-offs between e.g. rules for withdrawals and interest rates are already common with today’s savings account.

Excursion on oversimplification:
In order to focus on the general idea, I leave out a mass of details that would need to be considered in case of an implementation, say, how the existing differentiation between e.g. transaction and savings accounts is to be handled, whether an account of the first type can be eligible for an overdraft, and whether an account of the second type may give negative interest in a deflationary phase.

Excursion on the benefits of accounts:
Why not just make all accounts of the first type and replace the second type with other forms of investments, e.g. in that the banks issue bonds, which the customers can choose to purchase or not purchase? I am open to the possibility, especially as an alternative to keeping one account of each type. However, there is a potentially large convenience in having the traditional account “interfaces”, e.g. online banking, cheques, direct debit, available; not all customers might want an account of the first type (but still need banking services); and dealing with something familiar-to-most (e.g. a bank account) might be more attractive than dealing with something unfamiliar-to-most (e.g. bonds). (Other factors might exist, including relative risks and length of lock-up of resources, but will vary depending on what alternatives are compared.)

Excursion on the stereotype of a mattress filled with money:
A common stereotype, and/or joke image in fiction, is the very senior citizen who has a mattress filled with money, while the younger relatives shake their heads in wonderment over this perceived stupidity, techno-/whatnot-phobia, paranoia, or other less-than-flattering trait. Over the last few years, especially in light of my experiences with the German Postbank and, more recently, the Wuppertaler Sparkasse,* I have come to suspect that this very senior citizen is actually displaying common sense and has a better understanding of banking than the naive younger relatives…**

*A text on this might or might not follow in the future, but issues include, as I have likely mentioned in the past, attempts to terminate my account for having too large a balance—something patently absurd. (While I will not go into details about my finances, I note that I am by no means a millionaire, let alone billionaire, and that the sum was by no means uniquely large.)

**More generally, there seems to be a strong tendency for the younger generations to assume that they know better (and vice versa) in a blanket manner. This is far from a given, however, and if someone elderly has an opinion, it might be worth finding out why he has that opinion before dismissing it.

Excursion on bank profits:
A potential counter is that the above system might be too negative on bank profits. It might well be that the result is less profitable for banks than today, but only to the degree that it removes or reduces the undeserved profits that currently arise through a flawed system. Notably: The first type of account will bring a profit, if not a very large one, just like a safety deposit box does. The profits from the second type hinges on whether and by what margin the bank can beat the inflation rate—but if the bank cannot beat the inflation rate in the mid and long term, it must have a horrible competence problem or be horrifyingly unlucky. (Certainly, the banks that I have known have been very confident that if I gift the bank 10 percent of my money by investing in a fund, I will still be far, far better off than if I kept the 10 percent.) To this must be added that banks have other sources of income, with regular bank accounts mostly being important to give a basis for “credits and loans”. (And I have seen even this importance disputed in a juxtaposition between “fractional reserve banking” and “creating money out of thin air”. To date, I have not bothered to dig down in this issue, especially, as the answer might vary from country to country or from time to time.)

Written by michaeleriksson

March 19, 2023 at 5:14 am

Some thoughts on bank failures

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In light of the recent issues around Silicon Valley Bank and talk of a potential bailout:

When banks fail, there seems to be an inevitable attitude of “We have to save the bank! Think of the poor customers!”. The right attitude, however, is “We have to save the poor customers!”. Saving the bank might be an option to do that, but is never more than a means to an end.* Forgetting this risks giving more help to the bank, its management, and its owners than to the customers and creates negative incentives for the future, in that banks know that “We can speculate all that we want. If things go well, we get all the profits. If things go wrong, the government will bail us out.” resp. bank executives and whatnot know that “We can speculate all that we want. If things go well, we get gigantic bonuses. If things go wrong, the government will bail us out and we still get regular bonuses.”.

*It can often be a good means, as the difference between e.g. a non-failure, a “Chapter 11” failure, and a full failure can be comparatively small relative the overall assets, deposits, and whatnots, and as the best way to save the customers might be to temporarily prop up the bank. However, it is and remains a means to an end.

Getting rid of such flawed incentives might be the single most important thing when a bank fails, and a saner system would contain additional mechanisms to ensure that those responsible* take a major personal hit in the event of a failure and/or a bailout. Exactly what those mechanisms might be, is beyond the scope of this text. However, something like a personal liability for certain groups in the height of all salaries and bonuses received in the last five or ten years might be an option.** Indeed, considering the extreme importance of fiduciary duties for a bank, outright imprisonment of some few top figures might be a legitimate option.***

*Be it through actively having caused or contributed to the issue or on a “the buck stops here” basis.

**More generally, I have casually contemplated mechanisms like (even non-bank) CEOs having to deposit half their earnings in some type of escrow account for, say, ten years. If some criteria of success are met after those ten years, the corresponding amount is released; if not, it reverts to the employer. Alternatively, e.g., that CEOs may only receive bonuses in form of stocks and may only sell the stocks with a considerable delay. Such mechanisms would force a greater focus on long-term success and prevent the issue of someone driving up short-term profits in an irresponsible manner, earning large bonuses, leaving the company, and watching from afar how the mid- and long-term profits of the company pay the price. (A downside is that a former CEO may pay the price for the errors of his successor.)

***Not to be confused with imprisonment in case of e.g. fraud, embezzlement, or other existing/regular crimes. Depending on the details at hand, such additional causes for imprisonment might apply in parallel and/or already be relevant today.

Looking at the last large bank crisis, beginning around 2008, this save-the-bank attitude had the indirect negative effect of causing great resentment among many, and even caused some to take a position that it would be better to let the banks fail and to let the customers fend for themselves, with no thought for alternatives like letting the banks fail and spending the government money on covering (at least a part of) the customers’ losses. (This included my then boss, who had more strength of opinion in various areas than he did brains.)

A side-issue is what the effects of one bank failure on other banks might be, e.g. in that one failure causes a “run” on another bank, which causes a second failure, etc. As this might be more a matter of mass psychology, it is hard to make a recommendation, but I suspect that just knowing that one’s savings are safe, even should the bank fail, would reduce the risk enough. If not, the better solution would be to increase the requirements on banks to keep a larger portion of the customers’ money available for payouts, should the need arise. This would have the additional benefit of making loans more expensive,* shifting benefits from borrowers to savers, and reducing the risk of various “bubbles”.

*I am in strong disagreement with the school of “Loans must be cheap to keep the economy going!” (“[…] to allow more investments!”, whatnot), which is more likely to lead to unsound investments and create unsound businesses than to give true benefits.

Written by michaeleriksson

March 13, 2023 at 11:10 am

Inflation again / Meals for frying

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For another inflation follow-up:

A little more than two weeks ago, I revisited some inflation items from last September ([1]), and noted that the “[m]eals for frying” that I (originally, often; increasingly, rarely) buy had not changed in price in the interim—unlike most others items.

Today, I bought another one, looked at my receipt, and found a horrible 2.99 Euro!

Compared to [1], this is another 11–15 (!) percent* in five (!) months, after the price had already risen by 40 percent or more during the COVID-countermeasure era. Going back to the original price (“1.80-something”), we now have an increase of some 60 percent…** From another perspective, if the same rate of increase continues, the price come next September might close in on twice the original.***

*2.99 vs. “2.60-something”: 2.99/2.60 = 1.15 and 2.99/2.69 > 1.11.

**2.99/1.80 > 1.66; 2.99/1.89 > 1.58.

***Good predictions are impossible, because (a) trends can change, (b) prices, as above, often increase in jerks rather than smaller gradual increases. (In particular, cf. an excursion in [1], there is some chance that breaking the 3-Euro barrier would be too painful for the store.) However, if we assume a reasonably smooth increase, a rate of 13 percent for the previous five months, and add another seven months, then the 2.99 Euro would be scaled by a factor of (1.13)^(7/5), which amounts to approximately 3.55 Euro, while the original price, again, was “1.80-something”.

Fucking politicians!

Written by michaeleriksson

February 22, 2023 at 10:43 am

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Beeching axe vs. Swedish station closures / Follow-up: German department stores (and COVID-19)

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In an older text ([1]),* I discuss a side-topic of optimizations that might seem plausible, especially in the short term, but which might have unforeseen or ignored negative effects, especially in the long term—as with the closing of railway stations in rural Sweden during the 1980s.

*I apologize for the quality of language in that text. While I make no claim of perfection in other texts, I found myself sorely tempted to let a rewrite follow the revisit.

Today, I encountered the British Beeching cuts ([2])* of some twenty years earlier—and I find that the Swedish cutters of the 1980s had failed to learn from history.

*The exact version read and quoted is 129913.

For instance, I wrote that:

[…] Possibly, in any given case, [a station closure] was a rational decision, but it had the effect that overall passenger load was reduced and that fewer passengers used the other stations, making the next cut that more tempting.*** […]

***I note that this was deep in the country-side, where almost everyone had a car, and that it was rarely worth the trouble to take the car to the next station: unless the intended train travel was very long, one might just as well go the entire distance by car as go to a further-away station by car and then taking the train from there.

(Footnote present in the original.)

This while [2] says e.g.:*

*Internal remark removed. Some change to formatting might have occurred.

The assumption at the time was that car owners would drive to the nearest railhead (which was usually the junction where the closed branch line would otherwise have taken them) and continue their journey onwards by train. In practice, having left home in their cars, people used them for the whole journey. Similarly for freight: without branch lines, the railways’ ability to transport goods “door to door” was dramatically reduced. As in the passenger model, it was assumed that lorries would pick up goods and transport them to the nearest railhead, where they would be taken across the country by train, unloaded onto another lorry and taken to their destination. The development of the motorway network, the advent of containerisation, improvements in lorries and the economic costs of having two break-bulk points combined to make long-distance road transport a more viable alternative.

This assumption seems naive to me even for the 1960s, as the objection that I raise in the footnote is obvious as a possibility (but not necessarily as a certainty); however, that the same assumption was (implicitly or explicitly) made twenty years later is remarkable: How could railway experts be unaware of the British experiences? If originally unaware, how could they have failed to research prior experiences before engaging in similar cuts?

(Off topic, it is also a possible example of a recurring issue of various service providers, producers, whatnot being, for want of a better word, self-centered, in that they see their specific service, product, whatnot as the natural default, as unusually important, as having an exceptional position in the eyes of the customers, or similar.)

Among other interesting statements in [2], I was gratified to find claims of failed “bustitution”. While likely not something that I have ever discussed, I have always found bus travel to be cumbersome relative train travel, including in terms of (dis-)comfort and travel times. Similarly, cost and environmental* effects aside, a comparison between travel by bus and by car leaves the car well ahead. Whether my own experiences are relevant to a train–bus comparison in the British 1960s is uncertain; however, looking at the world that I know and have known, a relative failure of bus lines is not surprising. To be blunt, buses suck—even by the standards of public transport.

*And note that the environmental effects were prioritized far lower in the 1960s than today.

(However, note that I make no statement on whether the overall effect of the Beeching cuts was positive or negative—or, for that matter, the effect of the Swedish cuts.)

Excursion on other aspects of [1]:
The main/surface topics of [1] are department stores (including long-term trends and the potential effects of the, then new, COVID-countermeasures) and the ability of customers to buy this-and-that in a reasonable manner. To this, I note that I have likely not set foot in a department store in the almost three years since [1]—in part, due to the relatively low benefit; in part, due to the COVID-countermeasures, which saw a long stretch of forced downtime and made me lose any habit of department store visits. Further, that German Wikipedia points to severe and continued problems for the sole major player left (Galeria / Galeria Karstadt Kaufhof), including repeated Schutzschirmverfahren, which, in my understanding, are comparable to the U.S. “Chapter 11”.

More locally, I noted that “Sadly, I had [a Walmart-style market] just a few kilometers away, when I first came to Barmen, but it has since closed—incidentally, leaving the (otherwise very small) mall that it anchored almost dead.”. Since then, a new anchor has been found, but one with a smaller scope both in size (one floor instead of two) and product range (very little not found in a regular, food-centric, supermarket).

Written by michaeleriksson

February 13, 2023 at 5:45 pm

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McDonald’s and another inflation follow-up

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Disclaimer: The details of the below should be taken with several grains of salt, as I go by memory, as there are great uncertainties about various years and values, and as even a small change in inputs can lead to noticeable changes in outputs. The big-picture illustration of uneven price developments and whatnots holds true, however. (And note that this is really a text about prices in general. McDonald’s and the specific prices of McDonald’s are just the inspiration and illustration—not the underlying topic.)

To give another inflation update ([1]) and some observations around prices:

Earlier today, I made a rare visit to a German McDonald’s and bought two cheese burgers for a total of 3.98 Euro. This amount was so large that I, for a brief moment, believed that the prices had fallen, and that a > 2 Euro per cheese burger had returned below 2 Euro. In actuality, the 2 Euro of my memory was for the pair. (Cf. below.) In other words, we were at almost twice the price that I had “internalized”.*

*This is not the first time that a high current price has temporarily tricked me into, in some sense, misremembering a base price, be it through rapid inflation or through an encounter with an unnecessarily expensive brand or store. A good lesson is to actually think back and find the “true” base price before comparing. (But here it would have made no difference to my decision.)

This simultaneously illustrates the extreme price increases in recent years and how hard it can be to assign a “true” price increase to a “when” (also note an excursion on “mis-yearing” price increases in [2]):

Cheese burgers from McDonald’s were a common food for me and a few friends during our Swedish college days, based on a temporary rebate from 14 (?) SEK to 9 SEK during (maybe) the summer of 1995. To some approximation, this amounts to a nominal 1 Euro per cheese burger.* After a brief rebound to 14, McDonald’s appeared to have seen a business loss and soon went back to 9, which might have remained the price until I left for Germany in 1997.

*As a rough heuristic, a SEK to EUR conversion can be found by dividing by 10, making this approximately 1.4 and 0.9 Euro, respectively—without (!) inflation adjustment. (However, at any given time, the actual exchange rate might be something different. To make the situation more complicated, the Euro was not yet in existence at the time. Also bear in mind that Sweden is generally more expensive in terms of food than Germany, implying that a direct comparison between e.g. 1 Euro’s worth of food in Sweden and Germany can be misleading.)

I do not remember what the early German price (in D-Mark) was, but at some point after the switch to Euro that same 1 Euro was a typical price—and remained stable there for a long time. (I have not kept statistics on McDonald’s products, but I remember finding the comparative lack of price increases at McDonald’s during the “00s” pleasant.)

Beginning in maybe 2012, prices began to increase, and also lost a prior perceived uniformity.* At this juncture, the old two-for-two (the convenience of which had been a contributing reason for my frequent purchases during commuter phases) no longer held, but prices always remained solidly below 3 Euro resp. 1.5 Euro/pc. We might, in a very rough guestimate, have an increase of less than fifty percent in 15 years. (In Germany; looking at my own timeline, including Sweden, it might be 20 years.) Playing with numbers, fifty percent would give an annual average increase of 1.5^(1/15) or roughly 2.7 percent per year, while forty percent gives 1.4^(1/15) or roughly 2.3 percent per year, and thirty 1.8. These numbers are approximately the same as the official inflation goal.**

*I did a lot of commuting between Düsseldorf and Cologne in the few years following, and various items were more expensive in Düsseldorf. My impression prior to this was that prices were virtually the same everywhere. (However, I suspect that the individual restaurants have always had some leeway on paper and just been loath to use it.)

**But they also illustrate how dangerous it can be to see a small difference in a yearly rate and conclude that the long term effects will be small—a common problem with politicians.

However, these calculations assume a uniform increase. If we instead assume 10 years of a fix price + 5 years of increases, we find respectively 8.4, 7, and 5.4 percent per year for five years. On the one hand, this is well above the inflation goals; on the other, it might be argued that McDonald’s was simply catching up after keeping prices artificially low for a prolonged time. Indeed, a 2 percent increase per year (identical to the inflation goal) over 10 years accumulates to 1.02^10, or almost 22 percent, which to that date was not reflected in the price. Then again, the interpretation can depend on whether the original prices were fair or unnecessarily high, as these 22 percent, in the latter case, would have been an implicit reduction in a “too high” price.

With less or no commuting, my McDonald’s visits dropped considerably, and the COVID-countermeasures near killed them. There was a span of maybe two years without even a single visit; and today’s visit might have been the third within the last year.* The last time that I bought my two cheese burgers “pre” might have been in late 2019 or early 2020. I suspect that the price was still below 3 Euro for the pair, but call it exactly 3 Euro resp. 1.5 Euro/pc. Today, February 12th, 2023, I landed at the aforementioned 3.98 Euro resp. 1.99 Euro/pc. Call it 3 years. We then have an average yearly increase of (1.99/1.5)^(1/3) or just shy of 10 percent. However, looking at overall inflation, it began comparatively low in 2020 and has since gradually increased. Assuming the same with McDonald’s prices, we might have an increase very considerably above 10 percent for the last 12 months—and an average of 10 percent is well above the overall official average for the same 3 years. It is, however, not necessarily remarkable compared to some other food-price increases, as discussed in [1] and the preceding texts.

*And others seem to have had a similar reaction: a McDonald’s a few hundred meter from my apartment, next to the local town-center, and in a semi-prime position, seems to have closed permanently during the COVID-countermeasure era.

Excursion on McDonald’s:
As I have noted at some point in the past, fast food has grown increasingly slow. This was certainly the case today: despite a short queue, I had to wait roughly five minutes for my cheese burgers, because these were not ready to go and there was queue of others waiting for their food—a longer one than were waiting to order. This is the more interesting as cheese burgers have, in my experience, been a sure bet: they have almost always been ready to go, even when there has been a delay for e.g. Big Macs; or have become ready sooner, in the unlikely event that they were out. In all fairness, today’s specimens were well above average in quality, but this points to a problem with priorities: McDonald’s is fast food—not gourmet food. Sacrificing speed in an effort to bring up quality kills the concept. (As opposed to bringing up quality while keeping speed constant.) This especially as this particular restaurant is adjacent to a train station (many customers will be in a hurry), and especially as it points to poor planning. To the latter: With better logistics, it should be possible to keep close to “real time” deliveries for the most popular products, while having a high quality, at such times when there is a steady stream of customers. Such a steady stream was present. Nevertheless, there seemed to be a delay of several minutes per order on every order, as the respective orders were cooked “on demand”.

As an aside, staff at McDonald’s seem to have some weird blind spot regarding specifically my cheese-burger orders. If I order any of the full meals, everything is OK. If I order two cheese burgers, half the time, a variation of the following dialogue plays out:

“To go?” (“Zum Mitnehmen?”)

“To eat here.” (“Hier essen.”)

“To go.” (“Zum Mitnehmen.” This in an affirmative tone, implying “Your confirmation of ‘to go’ has been understood.”.)

I give a big sigh and roll my eyes—after which I receive a brown to-go bag, take it to a suitable seat and eat the contents in the restaurant.

Written by michaeleriksson

February 12, 2023 at 7:16 pm

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Follow-ups on inflation

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To revisit a few texts on or relating to inflation:

In [1], I note that inflation seemed to hit harder than it officially should, giving some specific examples. To briefly look at these examples again, what has changed price-wise in the four-and-half months since then, and how my own habits have been altered:

  1. Milk: Has gone from 99 Cents to 1.05 Euro for the cheapest brands that I have noticed—and that is for “light” milk, with “regular” milk coming in another 5 (?) Cents higher.* This makes for another 6-or-so percent** for the “light” version, maybe 11 or more for “regular”. (The price, to my recollection, used to be the same.)

    *I grew up on the “light” versions as a child and still prefer them, so this is no issue for me, but it might be for others.

    **Here and elsewhere, note that this is not an annualized number. For instance, with the same trend, a yearly increase based on 6 percent might be approximated through 1.06^(12/4.5) – 1 or, equivalently, almost 17 percent. Whether the trend will remain the same, I leave unstated.

    (Also note a later text on the “small savings count” fallacy fallacy for why this price difference might not be as trivial as it seems. Also note that milk is a very common ingredient in other products and that an increase in the price of milk can result in price increases in these too, even be it smaller ones.)

  2. Meals for frying: Those that I buy seem to be at approximately the same price as before, but some others, for sale next to them, are more expensive. Understandably, I have not paid that much attention to the prices of the latter, but I suspect that the price difference has increased, making the neighboring products even more vulnerable to inflation.

    (Also note that similar meals from Akzenta/Rewe, instead of Aldi, might be another twenty or thirty percent more expensive; however, here I have no baseline to compare with.)

  3. Sausages: The same type that sold at 2.39 is now typically at 2.49 or more, for roughly 4 or more percent. For a while, I switched to a different type, which was more expensive but contained a greater quantity, but I ultimately lost interest. Excepting a purchase for Christmas, I have not eaten sausages since, maybe, October. This is largely because I tend to move in cycles of eating something fairly often, growing tired of it, not eating it at all, at some point re-discovering it, etc.; however, the price increases do not help.
  4. Coffee: Here, there actually seems to have been an improvement, with rebated prices back below 5 Euro and regular prices at, maybe, 6.x. As I noted in [1], “[C]offee often underlies price fluctuations based on e.g. how successful harvests have been. The overall change might reflect more than just inflation.”, and I suspect that an improvement in such other factors might have taken place. The overall price, however, is still considerably above the original. (Also note some remarks on Dolce Gusto, below.)
  5. Muesli: In the wake of the deterioration, I decided to make a private experiment by simply buying my own rolled oats (reservations for terminology), nuts, and whatnots, and mixing them to preference. I never got farther than the rolled oats, which actually work quite well together with just milk, are quite cheap relative both nuts and ready-made muesli, and (as a single item) are more convenient than buying and mixing several components. I might revisit this in the future, to vary the diet a bit, especially once summer comes. (I tend to consume relatively more colder foods and more fluids in the summer, e.g. muesli with milk, and relatively more warmer foods and solids in the winter. Just rolled oats might turn out to be boring, once my frequency of eating increases again.)
  6. (Rote Grütze: I have not bought it once since the change, partly because of the reduced convenience of the smaller container, partly due to the aforementioned cycles, partly due to the aforementioned summer and winter habits for food. Correspondingly, I have not kept tabs on prices.)

In [2] and [3], I discuss how my regular toilet paper and chewing gum had seemingly been taken off the market. Both now seem to be back (knock on wood). Why, I do not know, with options ranging from an inflow of costumer complaints to a temporary shortage (e.g. with resources prioritized for more expensive brands) eventually ending.

However, it is also possible that this is an example of inadvertently leaving a niche open for competitors: If store-chain A scraps a certain product to favor more expensive products in the same category, while store-chain B keeps the equivalently positioned product, many customers might prefer to switch to store-chain B for that type of product, rather than picking the next best alternative from store-chain A. This could then foul the plans of store-chain A and force a re-introduction.

Worse, some new competitor could move into a newly created niche or otherwise increase the competitive pressure. This might be what is happening with Dolce Gusto, where I have repeatedly seen newer and cheaper versions of these capsules, e.g. when I went to Aldi last Friday. As I noted in [1], the price increase on the “brand versions” had been smaller than for coffee in general, but it was still large. Now imagine a prospective competitor, who is able to sell a cheaper product, be it by cutting profit margins or by lowering quality,* but only can undercut the “brands” by, say, ten percent. Not only is this a potentially poor incentive for him, as he has little room to find a satisfactory profit-maximizing price, but the customers have little incentive to switch from the “brands”,** and it might be that there is no viable niche for him. Now say that the competitors raise their prices by another twenty percent. Suddenly, he has thrice the price span to play with and a much greater chance of finding a viable niche. (But note that this calculation is just intended as an illustration of principle. I claim neither that these are the actual values at hand, nor that a calculation focused on a single factor would be enough in real life.)

*I have tried a few of these competitors and they have been lower in quality. Moreover, the choices available have been far fewer. There might or might not also be an issue with lack of cooperation from Dolce Gusto (or its equivalent in whatever field is at hand) in developing and manufacturing the capsules (or whatnots) in a sufficiently compatible form.

**If in doubt, note that Dolce-Gusto customers are likely to be less price-sensitive than the average coffee drinker.

***If we index the original “brand” price at 100, he originally had a span of 90 to 100. Afterwards, he stands at 90 to 120, which is three times the span.

Written by michaeleriksson

February 5, 2023 at 6:53 am

Follow-up II: A new toilet paper shortage?

with 2 comments

In [1] and [2], I wrote about a potential new toilet-paper shortage and a feared attempt to force customers into buying over-priced 4-ply instead of 3-ply. In the almost two months since then, I have not spotted 3-ply at Akzenta* during my visits. These have been fewer than in the past, but as the toilet paper is easily visible from the main get-from-point-A-to-point-B aisle, I have been able to easily check, even when having no intention of actually buying toilet paper.

*The store referenced.

Yesterday, however, the 3-ply 10-packs (but not 16-packs) were back. At 4.05* Euro, they were more expensive than in the past, but cheaper than the inferior 4-ply 10-packs.** The reason for this is beyond my knowledge, but I would suspect costumer complaints or misguided proportions in orders (cf. excursion), e.g. in that both 3-ply and 4-ply is ordered, the 3-ply runs out much faster, and the shelves are then completely stocked with 4-ply to avoid the appearance of “out of product”. (I was there very early in the morning yesterday and, if relevant, reasonably early in the week, as it was a Tuesday.)

*Why 4.05 over 3.99? It is puzzling, as this is one of the prime cases where that 9 could truly have a psychological effect. As I note from my receipt, the other seven items that I bought all had an “ends with a 9” price, even when it cannot have had much of an effect. The difference between, say, 1.79 and 1.80 is highly unlikely to make even a psychological difference (let alone a practical one). I might speculate that Akzenta is trying to “acclimatize” the customers to “toilet paper costs 4-Euro-something” or maybe minimize the perceived prize difference to the over-prized 4-ply, as with a comparison between 4.05 and 4.99 instead of 3.99 and 4.99, but neither explanation truly makes sense to me. (Why 4.05 instead of 4.09? Beats me.)

**As I failed to note the price of the latter, an exact comparison is hard, but already last time around it was “close to five Euro”, and the arguments from [1] on plies, sheets, and quantity of paper apply, e.g. in that we compare 6,000 plies and 2,000 sheets per 10-pack of 3-ply with 6,000 plies and 1,500 sheets per 10-pack of 4-ply.

While I suspect that the dependency of toilet paper on gas has been overstated, I note that I saw another update on the gas stores very recently—apparently, the stores where ninety percent full. (After a few cold weeks in late November, December 2022 was likely the warmest that I have ever experienced, and January 2023 has, so far, been similar. Unless there is a very drastic change for the colder, sheer luck will make the politician-created gas crisis be a storm-in-a-tea-cup or cause it to be postponed until next winter.)

I also wrote about an apparently scrapped brand of cheap-but-high-quality chewing gum. A few weeks ago, the chewing gum was back—but then gone again for my next visit, and it has not resurfaced. Here there might be similar issues or there might e.g. be a situation where some rest store is present and portioned out to simultaneously avoid a write-off and a downward pressure on higher markup products. (But, again, here there is too much speculation necessary for my taste.)

Excursion on misguided proportions:
I have repeatedly made the experience that decision makers have no sense for what proportions of e.g. manufacture are suitable and fail to take empirical evidence into consideration to modify such proportions. The first such experience was school-lunches during my childhood: Evidently the same amount* of food was ordered regardless of what the food was. This resulted in everyone asking for seconds, and most being turned away for a lack of further supply, when there was e.g. a pasta dish, but great amounts of e.g. over-fried** fish and over-boiled** potatoes having to be thrown away on other days. The children noticed, the teachers noticed, the staff handling the school lunches certainly noticed—whoever made orders either did not or did not take action. The, maybe, most recent is ready-made rice dishes intended for the microwave that I occasionally buy at Aldi. There are three variations: “Mediterranean”, “Mexican”, and “Asian”. These appear to be delivered in cartons with an equal proportion of each. As it happens, I find the former two passable, the latter not—and apparently so do most other customers: if I visit in the evening, there is usually plenty of “Asian” left, but none of the others to be found. Why not just change the proportions to, maybe, 40–40–20, see happier customers, and reap greater profits? For that matter, why not pack cartons with just one type of dish, and let the stores order what proportions of cartons that they prefer?

*By some measure, maybe portions, maybe something else.

**Here note that this was not just a matter of these foods being inherently less to the taste of the children, which they certainly were, but also that the mass preparation, prolonged heating to keep the food warm, whatnot, hit such foods harder than they did, say, spaghetti and lasagna.

Written by michaeleriksson

January 11, 2023 at 10:01 am

Follow-up: A new toilet paper shortage?

with 2 comments

As a brief follow-up to [1]: Monday came and I tried my luck with Aldi. Here I did indeed find the 3-ply paper, and brought home an 8-pack (1600 sheets, 4800 plies; compare with the “Ja!” 4-ply 10-pack at 1500 sheets, 6000 plies). Even with a switch from 10 to 8 rolls, I do better with 3-ply. Moreover, my 8-pack cost me three* Euro, which compares very favorably to the “close to five Euro” of that 10-pack. In the good old days of 2-ply, I might, depending on priorities, have done even better with a 6-pack (!) at 1800 sheets and 3600 plies.

*2.95 or 2.99 or whatnot.

Excursion on consumer resistance:
But is so small an amount of money worth the extra effort? This is open to debate, at least for a single person.* My main motivation is something different, namely that by not buying 4-ply I make it harder for the stores and manufacturers to pull the artificially created switch to 4-ply.** If consumers were to even semi-consistently push against disputable methods, these would be less attractive to stores/manufacturers and the lives of consumers would be easier. Imagine, for instance, that many were to follow my example and deliberately avoid products encountered in advertising for some time period—advertisers might now see disappointing gains, no gains, or even a drop in sales as a result of an advertising campaign, which would make the amount of advertising decrease and, in turn, make the world less annoying and prices lower as the need to factor in advertising costs when setting prices is reduced.

*The economics might look very differently with two adults and four children.

**Strictly speaking, I cannot rule out that there was an element of coincidence behind the situation of [1]; however, looking at shelf arrangements and price labels, a deliberate change is the most likely explanation.

(A secondary motivation is that being somewhat price conscious might bring a considerable gain over the sum of all products, even when it does not do so over a single product. Shave, say, 10 percent of the yearly grocery bill and we are talking something noticeable.)

Excursion on comparing toilet papers:
One reason why I have never bothered much with toilet-paper comparisons in the past (let alone put them in writing) is the great problems with such comparisons—I have simply preferred to take the easy way out and, whenever possible, stick to the same brand. Consider that we have at least price, pack-size, number of sheets per roll, number of plies per sheet, the size of each individual sheet/ply,* and, to some degree, quality as core criteria—and then, depending on personal preferences, we might have secondary criteria, e.g. what proportion of the paper stems from recycling and what coloring** or pattering** might have been applied.

*Although I suspect that the differences are too small to bother with in most cases. The width, in particular, is likely to be standardized, to ensure that rolls from different brands fit in the same dispensers. (This might or might not also affect the number of plies, which has been 600 per roll for all the variations mentioned in these two texts.)

**Might influence popularity with many children and some women.

Written by michaeleriksson

November 21, 2022 at 11:09 pm

A new toilet paper shortage?

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Shortly before I bought toilet paper the last time, I was met with the news that lack of gas* could have a negative effect on the availability of toilet paper. Remembering the empty shelves caused by hoarding when there was no underlying supply problem,** I decided to go from my usual 10-pack of 3-ply (“Ja!” brand) to a 16-pack, to be set for a good long while—after all, if a real supply problem is combined with hoarding, things could get really ugly.

*Feel free to apply your own toilet humor.

**Cf. e.g. [1] and [2].

Earlier today, I encountered the claim that the German gas situation was under control, after all, that the storage tanks were full, and that everything would be fine during the winter.* I also, coincidentally, found myself on my last roll of toilet paper.**

*Maybe as a result of the unusually warm October and, to date, November. I caution that various claims around gas and whatnot might not always be reliable—the previous track record has been spotty.

**I usually buy the next pack well in advance, but the greater quantity of the 16-pack made it drop from my mind.

I went to the store to fill my supplies, preferably with the same type of 16-pack. No such luck. Not only were there no 16-packs, but there was no 3-ply paper at all—only the wasteful and over-expensive 4-ply (cf. below). The cheapest available was at close to five Euro, for a “Ja!” 10-pack of 4-ply, given as 150 sheets* per roll, equalling 1500 sheets and 6000 plies. Other brands charged even more for 8-packs, still in the wasteful 4-ply version. The old 16-pack? 200 sheets per roll for a total of 3200 sheets and 9600 plies. While I do not remember the price of this 16-pack, after so long a time, I believe that it was on a similar level, and I do know that I have bought 10-packs of 3-ply for 2-Euro-something in the past. (How far back in the past, I do not know. Toilet paper is not normally a priority.) I decided to forego the purchase and make a new attempt in another store tomorrow or on Monday.

*With reservations for exact terminology. Think the part between two sets of perforations.

Oh, and there was also a limit of two packs per customer.

Here we see another case of artificial limits on choice (cf. [3] and follow-ups): Why should I, as a customer, be restricted to 4-ply, when I was reasonably content with 3-ply, and very happy with the old 2-ply?* In sufficiently far away times and in Sweden I have even used 1-ply, which my father used to buy for a while. My sole complaint against 1-ply was that the paper quality was lower—but that is not an inherent property of 1-ply and was likely a result of the producers assuming that 1-ply users were cheap-skates who would prefer lower quality too.** Indeed, it could easily be argued that a lower ply number is better, as it allows a greater flexibility: maybe there are tasks where a single sheet of 4-ply is a good choice, but a 4-ply user is inherently limited to multiples of four, where a 2-ply user can use multiples of two, and the 1-ply user multiples of one. Say that a given task requires a quantity equivalent to 6 plies. The 4-ply user has the choice between 4, too little and maybe inadequate, and 8, too much and wasteful, while the 2- and 1-ply users hit the spot. Often, it is the sheets that count, and the 4-ply user is then naturally wasteful.

*2-ply has already disappeared from the consumer market in Germany, some years ago, in a similar customer-hostile and price-raising move. If not, I would still be buying it by preference.

**This is a common problem, e.g. with electronics, that quality is something that co-varies with quantity resp. set of features, when it should be an independent factor. For instance, a consumer might have a choice between a small low-quality TV and a large high-quality one—but rarely has the option of a small high-quality one. (He might find a small expensive TV with greater ease, but that is another matter.)

To take another perspective and look at how to handle a shortage: It would make sense to lower the ply number and, thereby, increase the total number of sheets available. For instance, the above 4-ply had 150 sheets and 600 plies per roll. The same number of plies/the same quantity of paper would give 300 (!) sheets of 2-ply or 600 (!!!) sheets of 1-ply. The number of sheets is, of course, not everything that counts, but sheets are often equivalent or near-equivalent, regardless of the number of plies; and when the plies do count for more, there is always the option of just folding one sheet of 2-ply over another for effective 4-ply, while dividing 4-ply into 2-ply is a different story. (Also note the environmental angle, where 4-ply fares correspondingly worse.)

The reason for this is ultimately a matter of higher markups, as with the earlier removal of 2-ply in favor of 3-ply. Despite more plies leading to an inferior product, the price per quantity of paper increases, while the production costs do not, leading to a higher markup. (A contrafactual “superior product” is pushed by non-arguments like “Supersoft!!!”, while providing nothing not achievable through folding 2-ply.) However, in the current era of inflation, it also likely carries an element of increasing-prices-without-increasing-prices: markets are segmented into different price and product ranges, and by simply removing relatively low-end products the average price increases—even when no individual product sees a price increase. Similarly, a few weeks ago, I noted that Akzenta had scrapped my favorite brand (also “Ja!”) of sugar-free* gum—cheap, good quality, and not as ridiculously strong-tasting as some of the more expensive brands.** My first attempt at a replacement (“Fresh and Free Active” from Aldi) seems to do the job, but is a little carton-y in taste and texture—definitely a lesser choice.

*Strictly speaking, “sugar-free” partially misses the point, but I have found no good translation for the German “Zahnpflegekaugummi” (literally, roughly, “tooth-care chewing-gum”) for which the key point is increased salivation, while being “sugar-free” is a mere prerequisite to avoid doing more harm than good.

**I strongly suspect that many tooth-care, household cleaning, whatnot products work with an artificially increased taste resp. smell in order to create a misleading impression of a greater effect.

An interesting complication is how short-term this approach is: Yes, removing the cheaper products from the markets, shrinking package sizes, whatnot can lead to customers not noticing price increases that strongly in the now—but what about tomorrow? The basics of market segmentation and competition have not changed, an optimization of profits will not be possible without a sufficiently granular segmentation, and, if one company foregoes a market segment, some competitor will, sooner or later, move in. Chances are that these short-term manipulations are a bad idea in the long-term.

Excursion on price increases vs. dishonest price increases:
I stress that I do not (necessarily) object to prices rising, as long as this reflects market forces and is done in an honest manner. Given a certain quantity and quality, I do prefer to pay less—duh! However, it is better to have a higher price and the ability to actually buy something than a lower price and empty shelves. My main beef above is about the dishonest manipulations involved, including attempts to mislead and to artificially limit choice. A lesser beef revolves around a poor way to handle a supply deficit, and one that might be argued as irresponsible, but here care must be taken not to put too great demands on the industry. (Note, as a negative example, the rhetoric and demands made by many governments around energy prices—up to and including the demand that suppliers should sell gas and electricity at prices that would cause them to lose money…)

Written by michaeleriksson

November 18, 2022 at 10:54 pm