‘Cheapflation’, the phenomenon related to junk mortgages that punishes the shopping basket of the poor: “They are the most affected”

Historians always insist that To understand the present in which we live, we must know the past.that is: knowing where we come from. Almost two decades ago, in 2007, a financial crisis broke out in the United States that had global repercussions and reached Spain in the form of a real estate bubble. It was known as crisis of the subprimes or junk mortgages, mortgage loans granted to citizens with low solvency and, therefore, with a high risk of non-payment.

That huge hole in the financial system caused by the subprimes made investors who moved large amounts of money in 2008 they changed the brick for meat, milk, cocoa or coffee. The consequence was an increase in the cost of some basic foods around the world, such as wheat or rice, and their derivatives. It was the first major increase in food prices in the 21st century, but not the last.

More than a decade later, Food prices are experiencing a new rise due to a combination of factors: from global geopolitical tensions (Ukraine, the Middle East…) and adverse weather events to financial speculation and increased business profits. According to a recent study by European Central Bank (ECB)the cost of food in the euro zone would have increased by a third since 2019. In Spain, this increase would be up to 34%.

The big problem with these increases, which far exceeded the inflationlies in the fact that it has not occurred to the same extent in all foods: the increase in price has been much greater in the cheapest products within the same category, which can be called ‘cheapflation’. This is stated in a report from the Barcelona Urban Research Institute (IDRA) carried out by Rubén Martínez and Adrià Rodríguez.

The document refers to research published at the end of 2024 in the Journal of Monetary Economics which analyzes the prices of food sold by 91 large multichannel retailers in ten countries between 2018 and 2024. The conclusion for Spain was that The cheapest products rose by 37% between 2021 and 2024, while the high-end products rose by 23%, fourteen points less.

“It is the phenomenon known as cheapflationwhich especially affects households with fewer resources. When these households try to adapt to rising prices, they They often replace commercial brands with white ones, reducing formats or choosing inferior quality products.. These alternatives, far from being exempt from inflation, have often experienced more intense price increases than mid-range or high-end products,” the report explains.

“When these households try to adapt to rising prices, they often replace commercial brands with white ones, reducing formats or choosing lower quality products”

For Miguel Angel Ruizpresident of the Spanish Consumer Association (Asescon), this situation is “very worrying” because “we are talking about increases in the cheapest and most essential products, which are the most demanded by consumers with lower purchasing power.” Also remember that in recent times a notable price increase in white label products -those that are sold under the establishment’s own brand and that are cheaper-, which “have been gradually displacing the leading brands from the shelves of the different supermarket chains.”

Ruiz advocates to try to reverse the situation by “implementation of mechanisms that allow for lower prices”such as the reduction of VAT (Value Added Tax) on certain products, a measure that the current Government has already adopted to confront the inflationary crisis. This tax reduction altered the prices of basic foodstuffs such as bread, milk, eggs, fruits, vegetables. All of them went from paying a super-reduced 4% VAT to being temporarily exempt from it. Other items, such as pasta or oil, reduced their rate from 10% to 5%.

The cheapest eggs rise 50% in six months

Recently, the Organization of Consumers and Users (OCU) has denounced a clear case of ‘cheapflation’ in the price of eggs, whose cost has increased in the most economical categories by up to one euro in just six months, which represents a increase of 50% that “punishes the most vulnerable households.”

In this way, according to data from the OCU Supermarket Price Observatory and of his annual studies, The average cost of a dozen M eggs has gone from 2.14 euros in February to 3.14 euros in October. In the case of L size eggs, the jump has been from 2.33 to 3.25 euros. “This evolution especially affects households with fewer resources, which depend on this basic food as an affordable source of protein,” highlighted the OCU. This increase is added to a inflationary trend started in 2021 and represents a cumulative increase of 137% in category M eggs and 119% in size L eggs.

This group has also emphasized the uneven rise depending on the type of egg. While “the cheapest eggs (cage or floor) have experienced the greatest increases, free-range and organic eggs have increased less in absolute and relative terms”, which implies that “Consumers with lower purchasing power are the most affected by this situation”.

Not to be confused with ‘cheapflation’

Although it may seem that ‘cheapflation’ (cheapflation in English) and what is known as ‘cheapflation’ allude to the same problem, basically they have nothing to do with each other. While ‘cheapflation’ refers to increase in the price of the cheapest products within the same category; ‘cheapflation’ is related to a business practice consisting of lowering the quality of a product’s production by replacing some ingredients with cheaper ones but maintaining the sales price, which deceives the consumer.

“The term cheapflation emerged at the end of the last 20th century to define a practice followed by manufacturers to survive a rampant crisis. Basically consists of replacing the materials or ingredients that make up the product with others of lower cost and, therefore, of inferior quality,” explains Eduardo Irastorza, professor at OBS Business School, in an article published in Emprendedores magazine.

Irastorza affirms that acting like this “allows brands that implement these practices stay in the market and increase your profit margin”. As always, in the end “those who lose the most from this malpractice are the consumers who, in short, receive a worse product or a smaller quantity for the same price.”

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