Who doesn’t love potato chips? Potato chips are a popular snack food that is enjoyed by many around the world. They’re made by slicing potatoes thinly, frying them in oil, and seasoning them with salt or other flavorings. They are tasty and satisfying snacks, enjoyed best in moderation because they are not the healthiest. Do your best not to be tempted to eat potato chips after reading this blog!
What is Inflation
Inflation is the rate at which the general level of prices for goods and services rises and, subsequently, purchasing power falls. Central banks attempt to limit inflation and avoid deflation to keep the economy running smoothly. The Consumer Price Index (CPI) and the Producer Price Index (PPI) are the most common ways to measure inflation. The CPI measures the average change in the prices of a basket of goods and services consumed by households, while the PPI measures the average change in prices received by domestic producers for their output. Inflation can have various causes, but most commonly occurs when a corresponding increase does not match an increase in the money supply in the output of goods and services.
How is inflation affecting potato chips
What is the different cost that goes into a bag of potato chips? According to Mikesell’s Chips of Dayton, Ohio, the ingredients are simple enough: Potatoes make up well over half of the expense in a bag of chips, about 60%. All-important cooking oil contributes another 20% to 25%. The remaining costs include processing, cooking, and plastic packaging for the food, transportation costs, maintenance, energy, machines, labor, and hiring for the company. The price of everything has gone up since 2019. The price of potatoes rose 20% in 2022, and cooking oils have doubled, along with the remaining inputs also seeing price increases. The price of a 6oz. bag of chips from Mikesell’s has gone from $1.29 to cross over $2 per bag.
You can see the rising cost of potatoes since 2019 below!
How it impacts you
When prices rise, the end consumer often has to pay for these rising prices. If not passed along to consumers, inflation can eat into a company’s profits.
Companies have two options to provide potato chips to consumers when fighting inflation.
1. Pay more money for a bag of chips
2. Pay less money for fewer chips
Pepsico, the owner of the popular chip brand, Lays, has been honest about how they are fighting inflation. Their CFO Hugh Johnston said, “There are times we’ll take chips out of the bag instead of taking pricing up,” he said. “There’s other times we’ll actually increase the number of chips in the bag, and we may take pricing up a little bit along with that.” (Benzinga)
This is not exclusive to potato chips. It is happening to many foods and products across the board.
How can you budget/prepare for inflation?
When budgeting for expenses, especially for expenses with variable costs like groceries and gas. Increase the amount you plan on spending in accordance with inflation. Pay attention to the Consumer Price Index (CPI) for a great way to gauge how much your expenses could increase. The current CPI rate as of November 2022 is 7.1%. You can be prepared even though inflation is out of your control.
FRED Economic Data (Potato Chips)