Introduction to Shrinkflation
You don’t notice the squeeze … until you do. Have you ever felt like your money isn’t going as far as it used to? You’re not alone. There’s a phenomenon called shrinkflation that’s affecting consumers everywhere. It’s a gradual price inflation that hits us where it hurts – in the pocketbook.
What is Shrinkflation?
Shrinkflation, also known as the "grocery shrink ray," is when companies reduce the quantity of a product while keeping the price the same. It’s a sneaky way to raise prices without actually raising prices. For example, a bag of chips might be 10% smaller, but the price remains the same. You’re getting less product for your money, and that can add up over time.
Key Points About Shrinkflation
- Shrinkflation raises consumer costs by reducing the quantity of a product for the same price.
- Steady inflation can be part of a growing economy, but shrinkflation can create packaging waste and wreak havoc on old recipes.
- The Bureau of Labor Statistics (BLS) does its best to reflect shrinkflation in its Consumer Price Index (CPI) calculations.
Inflation vs. Shrinkflation
For any good or service, the cost to you is its price in dollars (or your local currency) for a given quantity. In math terms: Your cost = The price you pay / the quantity you get. Price inflation is an increase in the price of a good or service for the same quantity. With shrinkflation, instead of a rise in the numerator (price), it’s a decrease in the denominator (quantity). Either way, the cost to you as a consumer is higher than it was.
Shrinkflation Example
Suppose you’ve been paying $5 for your favorite loaf of bread, which is packaged as 20 one-ounce slices. That comes out to 25 cents per slice (and 25 cents per ounce). But one day, that same loaf is $5.50. That’s 10% inflation. Now, let’s say you go to the "discount" grocery across town, and you find what looks like the same loaf, still priced at $5. But upon closer inspection, you see that those 20 slices are now in an 18-ounce package. Each slice is 10% thinner (and the package is 10% smaller). That’s 10% shrinkflation. No matter how you slice it—or how you price it—you’re getting 10% less for your money.
Why Do Companies "Shrinkflate" Their Products?
Whether it happens via price inflation or quantity shrinkflation, a little utility loss—over time—is a natural part of a growing economy. Moderate inflation tends to encourage spending and investing, which can drive innovation, employment, and overall economic expansion—so long as wages keep pace. But with all the headwinds facing companies during and after the COVID-19 pandemic, some opted to hold the line on prices while reducing quantities to maintain profitability.
The Impact of Shrinkflation
Shrinkflation can have several negative effects on consumers and the environment:
- Budget buster: If wages can’t keep up with inflation, shrinkflation will steer you away from your long-term financial goals.
- Packaging waste: When producers shrinkflate, they often deliver products in the same size container, resulting in more packaging waste.
- Recipe for disaster: Shrinkflation can throw off your favorite recipes, especially if you’re used to working with specific quantities.
- Quality control: The most insidious form of shrinkflation is when companies skimp on the quality of their ingredients, which can affect the overall quality of the product.
The Bottom Line
In general, consumer costs tend to rise over time. Whether your costs are going up via a rise in the numerator (price inflation) or a decrease in the denominator (quantity shrinkflation), you’re getting less overall utility for your dollars. The U.S. Bureau of Labor Statistics says its data collectors review both price changes and changes in packaging sizes when calculating the Consumer Price Index. They won’t catch everything, but they’ll notice significant changes.
Conclusion
Shrinkflation might seem like a minor annoyance, but it can add up over time. By understanding what shrinkflation is and how it affects you, you can make more informed purchasing decisions and plan your budget accordingly. Remember to watch for signs of shrinkflation and adjust your spending habits to stay ahead of the game. With a little awareness and planning, you can minimize the impact of shrinkflation on your wallet and make the most of your hard-earned money.
