Shrinkflation: An Indirect Price Increase

Nowadays, many consumers have been complaining not only about high prices but also about the size or quantity (and sometimes the quality) of some products that they purchase. In fact, some producers/manufacturers have reduced the size or quantity of items in the bags of products that they sell. This phenomenon is referred to as shrinkflation.

What is shrinkflation? How does it work?

In economics, shrinkflation - also known as package downsizing - refers to the practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases. This practice sometimes includes the lowering of the quality of the product or its ingredients while keeping the price unchanged. In periods of persistent inflation, this strategy becomes common in some industries, notably in food and beverage industries.

Why do producers resort to shrinkflation?

As ingredients and manufacturing costs become elevated in times of high inflation, producers argue that they have two options: increase prices or offer smaller-sized products to customers. They are reluctant to raise prices because they do not want to lose customers to competitors, especially in industries where market competition is fierce. In response to rising production costs and to maintain their profit margin, manufacturers resort to package downsizing, hoping that their customers would not notice the change in size or quantity. Initially, the strategy works but customers eventually become aware of it and react appropriately.

Package downsizing is in fact an indirect price increase because a smaller-sized product represents an increase in per unit price. For instance, when manufacturers reduce the quantity in a box of cereal and keep the price unchanged, they automatically raise the price per item in the box. This practice allows them to indirectly pass rising production costs onto consumers and sometimes increase their profit margin.

Real-world examples of shrinkflation

Business Insider ( which has identified its sources) has provided numerous examples of package downsizing, including the following:

• Frito-Lay shrank bags of its Dorito's from 9.75 ounces to 9.25 ounces
• Gatorade redesigned its 32 ounces bottle to hold 28 ounces, despite both bottles being the same height
• Pizza giant Domino's said that it would be cutting the number of chicken wings in its $7.99 national promotion from 10 to eight pieces
• Burger King reduced the number of chicken nuggets in its $4.99 meals from 10 pieces to eight
• Walmart Great Value Paper Towels dropped from 168 sheets per roll to only 120, while the price stayed the same
• Hershey cut down its 18-ounce pack of dark cholate Kisses by almost two ounces
• General Mills shrunk its "family size" boxes from 19.3 ounces to 18.1 ounces
• Cottonelle's Ultra Clean Care toilet paper is down to 312 sheets from 340 sheets
• Bounty Tripples reduced sheet account from 165 sheets to 140 sheets
• Tillamook decreased the size of its ice-cream cartoons from 56 ounces to 48 ounces
• Quaker's Life cereal also shrunk from 24.8 ounces to 22.3 ounces
• In Canada, Quaker has reduced the size of its Chewy bars from 0.92 ounces to 0.84 ounces
• Tesco, the United Kingdom's biggest supermarket, was shaving 50 grams (1.76 ounces) off some of its ready meals.

The above cited examples clearly illustrate the fact that the price per unit paid by consumers increases as the amount they purchase decreases. By raising unit price via shrinkflation, manufacturers create a hidden form of inflation.

Does the U.S. Bureau of Labor Statistics account for shrinkflation?

Consumers consider package downsizing as a deceptive practice used by manufacturers to squeeze more money out of them. And they wonder whether the Bureau of Labor Statistics (BLS) takes the impact of this strategy into consideration in its calculation of the Consumer Price Index (CPI) - a measure of inflation.In a BLS's article entitled "Beyond the Numbers", it is stated that the BLS makes every effort to capture the changes to product sizes and prices in the Consumer Price Index in a timely manner, and that CPI economists tracked identified downsizing and upsizing in the CPI sample each month. However, the article also points out that package downsizing is sometimes difficult to identify because "manufacturers employ a variety of means to reduce package size while keeping the same price". Some of the means include adding air to the package or increasing the "divot in the buttom of the jar". These means also include change in the "packaging colors, materials, or design".

Conclusion

Shrinkflation or package downsizing is a disguised practice used by manufacturers to raise prices indirectly instead of doing so directly. In other words, it is a strategy to pass onto consumers rising production costs and to retain profit margin in competitive markets. Although consumers consider this practice devious, deceptive and costly to them, it is not illegal. Nevertheless, shrinkflation - as an indirect price increase - does constitute a hidden form of inflation, which makes an accurate measure of inflation more difficult (if not impossible).