If you’re looking for an inflation hedge, look no further than drugs. Even historically high rates of inflation haven’t led to higher prices for illegal substances like cannabis, MDMA, cocaine, and heroin. Not only have prices remained stable over the years, but quality has stayed the same and even improved in some cases. Why are illegal drug markets seemingly immune to inflation?
Inflation
Inflation is quite the buzzword these days. Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year, by using the consumer price index. It’s probably one of the most familiar words in economics, as inflation has historically been responsible for initiating long periods of instability in numerous countries across the globe. And we’re seeing a great deal of it in the United States lately.
While inflation hasn’t been as dramatic these last couple years as it was immediately after the COVID-19 pandemic and shutdowns, the cost of goods is still rising. The U.S. inflation rate for 2022 was 8.00%, a 3.3% increase from 2021, while this year so far, the annual inflation rate was 3.7% for the 12 months ending in September, according to U.S. Labor Department data published on Oct. 12, 2023. But we will know the true, year-over-year stats after the end of the calendar year.
Even though inflation is slowing down, the problem is that salaries never caught up. When we compare the average cost of a home in 2022, which was $349,000 and has gone up since then, with the average price from 2000 at $119,000; then factor in the federal minimum wage from those same years, $5.15 and $7.25 respectively, we can see some major discrepancies.
Wages went up 40.8 percent over a 22-year period, meanwhile, the cost of housing has increased by 193.3 percent. And it’s not just the cost of housing, but everything is going up – groceries, gas, utilities, clothing, even little stuff like streaming and other memberships have doubled, even tripled, over the years. The only product left that seems to have completely dodged inflation-related price spikes (beside Arizona Iced Tea), are illicit drugs.
Street drug prices
What’s interesting about street drugs, is that pricing is pretty standardized. They fall into a range, but overall, they have remained relatively stable over time. For example, when I was growing up, an eighth of flower was always $40-50. Sure, we have more options now, even less than $10 in some markets, but overall, the price of a top-shelf eighth is still around $25-40.
According to Teodora Groshkova, principal scientific analyst at the European Monitoring Centre for Drugs and Drug Addiction, it was believed to be due to a method known as “skimpflation”, where suppliers reduce the quality of whatever they are selling to offset rising production costs, but this does not seem to be the case here.
“Any change in the [wider] market would typically be reflected in the drugs’ purity,” Groshkova says. “So far, however, the potency of cannabis products and the purity of other illicit drugs are increasing, or at minimum staying the same.”
How criminal organizations and other illegal drug producers have managed to skirt the pressures of inflation remains a mystery. While some might be going the “skimpflation” route to save some money, and others are horizontally integrating their businesses by controlling both import and distribution, that’s likely not the case for everyone. Groshkova suggests another possibility, which is quite simple, that drug dealers make so much money they’re able to better mitigate inflationary issues. “They’d rather not, but they can”, she adds.
Pharmaceutical drug prices
Perhaps even more interesting than the stability of street drug prices, is the fact that while illegal substances have actually gone down in price overall, legal pharmaceutical drugs have been increasing. And even though this has been happening since the 1990s, it seems the problem has compounded in recent years. Per a Medicare study published in February 2022, prices increased faster than rates of inflation for more than half of all the drugs they cover between 2020 and 2022.
A total of 3,911 drugs saw prices increases that were greater than inflation rates during that time period. Additionally, out of the 25 top selling medications in the US, 23 percent were subject to price hikes. So nearly every single one of the most popular drugs, that already pull in a lot of money, went through noticeable price increases.
It’s so bad, that President Biden signed The Inflation Reduction Act of 2022 into law on August 16th of that year. Among other things, the bill includes several provisions to lower prescription medication costs for people with Medicare and reduce overall drug spending by the federal government. The legislation has strong bi partisan support, as well as support from the general public who are struggling to deal with rising and already high drug prices.
Final thoughts
Sadly, the cost of housing and other day-to-day goods are still on the rise. But one thing that can offer us just a small nugget of solace is the fact that our favorite drugs seem to be immune to inflation. Both the good drugs – like cannabis, MDMA, and mushrooms; and even bad drugs – like heroin and cocaine, have remained stable in price while improving in quality and potency.
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