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Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise
Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise
Inflation has been on the rise for the past year and in the last few months it has accelerated. In June 2021, inflation, measured by the Consumer Price Index (CPI), hit the highest level since 2008. By inflation, economists refer to the increase in the general level of prices, which means that prices on average are increasing. The Bureau of Labor and Statistics (BLS) has a basket of goods and services that it tracks and uses to create a measure of the CPI. While inflation is the topic of the day in the news media and everyday conversations, many have not heard about its sneaky cousin, shrinkflation.
The term shrinkflation, is credited to British economist Pippa Malmgren, and refers to the shrinking weight of the products while the price for the package remains the same. This is in effect another form of inflation, since the per unit price of goods increases when products shrink. However, shrinkflation is trickier, since most consumers do not notice it (see here for a few examples of shrinkflation). Shrinkflation is an ongoing process, but we are seeing more of it in the past year, and especially the first half of 2021, as businesses scramble to catch up with increasing costs of production. Shrinkflation is so widespread today that there is a dedicated Reddit page for it.
Many complain about businesses resorting to shrinkflation and regard it as a sneaky way to increase prices. Yet many of the critics do not realize that businesses have no choice but to increase prices. Anyone who is paying attention to prices in the first half of 2021 will know that it is not only the price of consumer goods that it is increasing but also the prices of producer goods…
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Grocery Stores Are Masking Price Hikes Via “Shrinkflation”
Grocery Stores Are Masking Price Hikes Via “Shrinkflation”
The continued decline in Treasury yields has prompted many short-sighted arm-chair analysts to declare that the Fed was right about inflationary pressures being “transitory”. Of course, as Treasury Secretary Janet Yellen herself admitted, a little inflation is necessary for the economy to function long term – because without “controlled inflation,” how else will policymakers inflate away the enormous debts of the US and other governments.
As policymakers prepare to explain to the investing public why inflation is a “good thing”, a report published this week by left-leaning NPR highlighted a phenomenon that is manifesting in grocery stores and other retailers across the US: economists including Pippa Malmgren call it “shrinkflation”. It happens when companies reduce the size or quantity of their products while charging the same price, or even more money.
As NPR points out, the preponderance of “shrinkflation” creates a problem for academics and purveyors of classical economic theory. “If consumers were the rational creatures depicted in classic economic theory, they would notice shrinkflation. They would keep their eyes on the price per Cocoa Puff and not fall for gimmicks in how companies package those Cocoa Puffs.”
However, research by behavioral economists has found that consumers are “much more gullible than classic theory predicts. They are more sensitive to changes in price than to changes in quantity.” It’s one of many well-documented ways that human reasoning differs from strict rationality (for a more comprehensive review of the limitations of human reasoning in the loosely defined world of behavioral economics, read Daniel Kahneman’s “Thinking Fast and Slow”).
Just a few months ago, we described shrinkflation as “the oldest trick in the retailer’s book” with an explanation of how Costco was masking a 14% price hike by instead reducing the sheet count in its rolls of paper towels and toilet paper.
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How Costco Is Masking A 14% Price Jump With Shrinkflation
How Costco Is Masking A 14% Price Jump With Shrinkflation
The oldest trick in the retailer book is back.
We have previously written about shrinkflation – the “creative” masking of higher prices whereby retailers sell a materially lower amount of products for the ‘same’ price, covering up what is often a significant price increase on a “per unit” basis (see “”Shrinkflation” – How Food Companies Implement Massive Price Hikes Without You Ever Noticing“, “Shrinkflation Hits The UK: Toblerone Shrinks By 10%, Price Stays The Same“, Shrinkflation Intensifies – Stealth Inflation As Thousands of Food Products Shrink In Size, Not Price), and we have a feeling that in light of the recent surge in commodity costs and food prices, we will be writing about it a whole lot more in the coming weeks.
Take Costco, which as The Bear Traps report notes, is now charging the same price for paper towels but the roll has 20 fewer sheets. TBT refers to a recent post in a Red Flag Deals message board, where a member makes the following observation:
Costco paper towels. Same price as the previous several times buying them. Now with 20 fewer sheets.
140/160= .875
The stealthy decline of 20 sheets per roll of towels from 160 to 140 for the “same price” is the functional equivalent of 14.3% inflation, and as TBT notes, “In our experience, only potato chip companies can get away with selling a half empty package.”
Of course, once companies realize they can get away with such shrinkflation – and they will because as a RFD member responds…
I tried telling the clerk at Costco about this, and they said “who cares, it’s just 20 sheets.”
Will be the typical response.
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Shrinkflation In Ireland – Real Inflation Much Higher Than Reported
Shrinkflation In Ireland – Real Inflation Much Higher Than Reported
- Shrinkflation – Real inflation much higher than reported and realised
- Shrinkflation is taking hold in consumer sector
- Important consumer, financial, monetary and economic issue being largely ignored by financial analysts, financial advisers, economists, central banks and the media.
- Food becoming more expensive as consumers get less for price paid
- A form of stealth inflation, few can avoid it
- Brexit is the scapegoat for shrinkflation by the media and companies
- Consumers blame retailers rather than central banks
- Gold hedge has doubled in value since 2007
Editor: Mark O’Byrne
Shrinkflation: no one left untouched
600 new words entered our official lexicon this week as the Oxford English Dictionary announced the latest new additions to their online records.
One of the words reportedly up for consideration was shrinkflation. It did not make the final cut and as a result continues to be defined by the authority as ‘a portmanteau, made from combining shrink: ‘to become or make smaller in size’, with the economic sense of inflation: ‘a general increase in prices and fall in the purchasing value of money’.
In order for a word to be accepted into the OED it must have been in use for at least five years. But the latest list suggests that this isn’t the case and exceptions can be made. The inclusion of ‘superbrat’, a word which is usually associated with the behaviour of John McEnroe in the 1970s, actually dates back to the the 1950s.
Yet, shrinkflation continues to elude the world’s authority on the English language. This seems bizarre to us given both the word and the phenomenon and something consumers have been experiencing for a number of years.
Although it is understandable in the context of an important consumer, financial and economic issue which is being largely ignored by financial analysts, financial advisers, economists and the media.
…click on the above link to read the rest of the article…
