Shrink-Flation is Real!

During an election year, there is usually elevated talk about inflation being one of the most important topics for Americans to be concerned about and I concur!  There is more to current inflation reports as they can be manipulated to show lower percentage increase numbers.

Inflation is an economic term for the rising prices of goods and services, which usually happens gradually.  During the COVID-19 era, we have seen inflation rise much faster than usual for a variety of reasons.  The U.S. central bank AKA the Federal Reserve, aims for a “slow and steady” inflation rate of 2% per year.  While the annual rate of inflation peaked at 9.2% in June of 2022 June 2024’s 3.3% rate still exceeds the Fed’s target inflation rate.

Forbes describes their three types of inflation as follows:

1. Demand-Pull Inflation: Describes how the demand for services can drive up their prices.  If something is in short supply, you can generally get consumers to pay more for it.
2. Cost-Push Inflation: often kicks in when “demand-pull” inflation is going strong.  When raw materials costs increase for businesses (such as pizza, which I call Pizza-flation), the businesses, in turn, must raise their prices, regardless of demand.
3. Built-In Inflation: As demand-pull inflation and cost-push inflation both occur, employees may start asking employers for a raise.  Employers must figure out how to keep their wages competitive or they can end up with a labor shortage.  If/when the employers raise employee salaries and, to maintain profit margins raise their prices, built-in inflation has arrived!

Currently, the USA is grappling with all 3 of these types of inflation at the same time, which is rare!  Unfortunately, it gets worse before it gets better as there is a 4^th type of inflation that nobody talks about nor wants to acknowledge.

Americans feel inflation most at the gas pump and in the supermarkets and grocery stores across the country.  Consumers are tired of the rampant inflation we have experienced from 2020-2024.  Manufacturers are keenly aware of consumer sensitivity towards inflation, so they have devised a clever, if not sneaky strategy for raising prices per unit cost by reducing the size or quantity of products whilst keeping the price level.   This phenomenon is known as “Shrinkflation!”

Manufacturers use the sleight of hand of shrinkflation to increase their price per unit without raising prices. This leaves consumers “paying the same for less”- often without realizing it.  This is happening most in food and household products.

Shrinkflation is best understood by using “real life” examples of what is currently happening countrywide:

1. Cheerios:  General Mills, the maker of “Cheerios” and many other cereals and popular brands has reduced the size of its boxes from 19.3 ounces to 18.1 ounces (-6.2%) for the same price.
2. Charmin Toilet Paper: Procter and Gamble decided that their Charmin “Mega-Roll” which once had 264 sheets now contains only 244 sheets       (-15%), for the same price.
3. Doritos: PepsiCo, through their “Frito-Lay subsidiary, has ensured that their “Doritos” chip bags have reduced the number of chips per bag.  Their standard-sized bag has been reduced from 9.75 ounces to 9.25 ounces (-5.1%), for the same price.
4. Tide Detergent:  Procter and Gamble used the same strategy as Charmin by reducing their Tide Detergent bottles from 100 fluid ounces to 92 ounces (-8%), keeping the price the same. 
5. Coffee: Over the years, many bags of coffee went from 16 ounces to 12 ounces, and some are now 10.5 ounces, all for the same price.  Coffee sellers have realized that it’s more profitable to reduce bag size and keep prices under $10 (a psychological barrier) instead of raising prices further.

Manufacturers have reintroduced their smaller packages by shifting the focus using phrases such as, “new and improved.”

Before I give you a few tips to combat this sneaky way of increasing prices, the first step is to understand and recognize when this is happening. 

My “BIG THREE” money-saving tips are:

1. Compare Unit Prices: This takes minimal work as our smartphones have calculators in them.  Some stores like Costco actually list the “price per unit” on their shelves.  If not, do a quick “cost per unit or cost per ounce” calculation then compare products based on unit or cost per ounce.  You might be surprised when looking at prices using this method. 
2. Consider Buying in Bulk:  Membership stores such as Costco, BJ’s, and Sam’s Club can be a good place to start.  Online, websites such as www.RetailMeNot.com can be a valuable resource to easily search and compare prices by unit or ounce when online.
3. Be Aware: Stay informed about prices and price changes for your favorite products going forward so you don’t get blindsided by Shrinkflation!