This time of year, a holiday delight begins appearing on the grocery shelves. So far as I know, it’s one of those American specialties, laughed at by Europeans (especially the French!) but beloved in the United States. It’s the famed cheeseball, a hunk of Wisconsin cheddar the size of a softball that’s rolled in a variety of nuts. It’s served at room temperature and spread on crackers. It’s a favorite.
But something is odd this time around. Instead of being large and generous, the only ones I saw available at the store were only a bit larger than a golf ball, like a mini-cheeseball. I’ve never in my life seen something like this, though I might be wrong. Still, it was $3.50, which (if memory serves) is what the full-sized one cost two years ago.
We all know what’s happening: shrinkflation. The tubes of toothpaste are smaller. The candy bars are smaller. The hamburger bun package has 4 instead of 6 buns. The coffee container contains less. The bag of chips might be large but doesn’t contain much at all. The food at restaurants seems dominated by the cheap stuff (rice and potatoes), but not much is there in terms of meat.
Because our memories of prices aren’t usually precise or long-lasting beyond a few snapshots, most shrinkflation gets by us. It’s not that the sellers are trying to trick us, contrary to popular legend. They reduce packaging in order to survive as businesses. They know that price increases can trigger people to buy less or not buy at all, which is a move along the demand curve in response to prices.
At what point this happens is mostly a speculation on the part of businesses. They don’t know with any precision what the elasticities of demand for their product are in a changing market (even if they can calculate that roughly from past data). So they are better off and generally safer finding other ways to save on costs, passing them on to the consumer in ways that are less immediately obvious than with a blunt price hike.
Once it’s discovered, of course, the consumer finds himself annoyed, but are we blaming the right party? The seller is only responding to the price signals that he receives. The costs of everything have gone up, as with all periods of dramatic inflation. There are higher costs for raw materials, packing, printing, shipping, manufacturing, and labor. As businesses are faced with depleted cash reserves and higher interest rates on loans, something has to give. What changes is the quantity and often quality of the product sold at the final retail stage.
“BLS strives to capture product upsizing and downsizing in the CPI in a timely manner. Product downsizing and upsizing affect the cost to consumers of goods and services. The effective price changes due to size changes are reflected in the CPI. This analysis indicates that while only a small number of prices in the CPI experience downsizing each year, it does affect the indexes for specific item categories where such size reductions are common.
“However, the impact of product downsizing at the all commodity and services level is minimal, with an average annual effect of 0.01 percent per year, so while consumers may notice shrinkflation at the grocery store, it has a very small impact on the overall inflation picture they face.”
If I were a seller of goods, I would do everything possible to disguise the effect of downsizing in ways that not even the price checkers at the BLS would see. Based on the above claim, which affects only 0.01 percent of the overall price picture, it seems like many sellers are getting away with this just fine.
It’s a fair assumption, then, that it is not a thing accurately reflected in the inflation rate.
However, it’s still very real. If you bought toilet paper only once per month and you have to now buy the same number of rolls twice per month because each has fewer sheets, that’s actually 100 percent inflation in just one good. That has a huge effect on household and business finances. When that affects nearly everything we buy, we can safely assume that the CPI is likely underestimating the amount of inflation.
And that’s the whole point of shrinkflation, to disguise higher prices so that it’s least likely to cause consumers to revolt in anger. The anger isn’t directed toward the government or central bank, as it should be, but rather toward the seller of goods and private enterprise in particular. This is truly unfair. Remember that absolutely everyone faces higher costs in a period of inflation, not just consumers. It applies from one end of the production structure to the other.
Which is to say: We are all in this together. Regional differences can matter—just compare prices in California with those in rural Texas—but eventually, inflation hits everyone. Not even red-state rural areas can escape. The real culprit behind the scenes is Congress and its spending habits, the Federal Reserve’s open-market operations that create new money to water down the value of the old, and regulations that stop markets from responding in a competitive way to keep costs down. But that answer isn’t very satisfying to the public; it tends to blame the company selling the final product.
What can you do about this problem? Not really anything. Once the products shrink in size, disguising wicked inflation, your only choice is to consume less. That perhaps works for food if you are in need of dieting, but it doesn’t work for rent, utilities, medical services, or other goods and services for which you have to pay regardless of the price.
In short, we have entered into the great privation. You feel it already. You have already probably cut back. Everyone I know complains and is starting to respond, realizing that they have far less of their income left over at the end of the month. This is also why people are scrambling so hard right now to take a second job, work nights, and otherwise spend as little as possible.
The BLS data are hiding all of this turmoil in the labor markets. Why wouldn’t they disguise shrinkflation in the inflation data, too? It’s all part of the same game.
