Shrinkflation, Anyone? Retailers are Finding Clever Ways to Mask Surging Prices

With the downward trend in Treasury yields prompting some analysts to sigh a breath of relief in recognition of the Fed’s “transitory” narrative, Janet Yellen herself has postulated that a little bit of inflation in the economy is necessary for its proper functioning. Nonetheless, as policymakers and consumers continue to argue about the Schrodinger’s box of inflationary pressures, a largely overlooked phenomenon is manifesting itself across retailers and grocery stores: “shrinkflation.”

Shrinkflation occurs when manufacturers decrease the quantity or size of their products, while keeping prices the same, or even higher. According to a post on the website Red Flag Deals, a member makes an interesting observation: Costco continues to charge the same price for paper towels, but the rolls have 20 fewer sheets than before.

Indeed, the growing prevalence of shrinkflation poses a number of implications for academics of the classic economic theory. If the average consumer did in fact act in accordance to strict rationality assumptions, then they would likely notice such things as the downsizing of products. However, as economist John T. Gourville, along with Jonathan J. Koehler point out, consumers act a lot more inconsistently than what classical theory predicts.

The 2004 study found that the average consumer is lot more sensitive to fluctuations in price than to changes in product quantity. And, companies have been able to take advantage of this anomaly for years. Both General Mills and P&G have warned of surging input costs, which consumers can anticipate will be passed down to their wallets— or in this case, to their paper towel rolls.

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Information for this briefing was found via the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.