The term „shrinkflation“ is a comparatively new buzzword that describes the fact that the size of a product is getting smaller and smaller. At the same time, the product price either remains the same or even increases. Product size and product price are thus indirectly proportional to each other. Shrinkflation thus describes a modern phenomenon in which product manufacturers use skillful deception to try to make any price increases not directly visible to the customer. The customer is led to believe that the product price remains the same, while the quantity of the product has decreased.
Shrinkflation is therefore not a technical term, but rather an artificial word. The word itself is borrowed from the standardized terms „inflation“ as well as „stagflation“ and represents a compound artificial word. It is accepted in large parts of the population and is primarily used and understood by younger people. In the following sections, the term „shrinkflation“, its definition, usage, causes and effects will be discussed in more detail.
What is Shrinkflation? Meaning, Definition, Explanation
The word „shrinkflation“ is a combination of the two words „to shrink“ and „inflation“. In this context, the subword „to shrink“ refers to shrinking product sizes that are symbolically shrinking or being reduced in size.
For example, a product such as peanut flips that were previously sold in a 200-gram pack and are now only offered in 180-gram packs. The packaging size has therefore shrunk or been arbitrarily reduced by the manufacturer. On the other hand, the partial word „inflation“ aims at an increase of the product price or a devaluation of the money (which has to be spent for the purchase of the product).
Thus, „shrinkflation“ in the subtext means as much as that one receives less product for the same money from now on. Although the price of the product was not subject to direct inflation, the quantity of the product that was devalued or reduced was.
Causes of shrinkflation
Manufacturers are now increasingly resorting to the strategy of shrinkflation. This can have various causes, all of which will be examined in more detail in the following subsections. Specifically, these are cost increases at manufacturers, changes in demand, market regulations and political factors.
Cost increases at manufacturers
Many manufacturers are being forced to increase their product prices in the face of rising raw material costs. Raw materials are products or materials that serve as feedstocks for the manufacture of consumer products. Raw material prices can increase due to increases in demand, supply shortages, and political, economic and environmental reasons. Furthermore, changes in companies‘ wage and salary schedules can result in them having to pass on increased costs to their customers in the form of higher product prices. Increased energy costs, higher tax expenses and stricter quality requirements can also be responsible for cost increases. However, instead of directly increasing any product prices, companies are more likely to circumvent the price increase by reducing product volumes.
Changes in demand
Furthermore, the demand for a certain product can also have a negative impact on the product price and thus the product quantity. A decrease in demand inevitably results in reduced sales of the respective product. The lower sales cause the issuing company to skew its cost coverage. If costs are no longer properly or even adequately covered by product sales, either the product price must be raised or the quantity of the product must be reduced for the same price.
However, the same also applies to excessive demand for a product. This is because it usually causes a shortage of products, which can be counteracted by increasing product prices or decreasing product quantities. Shrinkflation can therefore have two causes in terms of changes in demand: Too little product demand, but also too much product demand can lead to it.
Regulations and political factors
Regulations as well as political factors can also provide reasons for increased production and cost processes in the company. For example, wage increases can be brought about by legal regulations. Political uncertainties, sanctions and trade conflicts can also lead to higher production costs. In order to keep the prices of their products roughly stable, many companies then resort to shrinkflation and try to counteract regulations and political factors in this way.
Effects of shrinkflation on consumers
In addition to pure inflation, in which money is devalued, shrinkflation also poses a serious threat to consumers. Unlike demonetization, shrinkflation directly devalues an individual’s basket of goods. This literally shrinks due to the reduction in product sizes. For the same amount of money as before (or in some cases even more than before), consumers then receive significantly fewer product quantities.
This in turn can mean that the individual standard of living can no longer be maintained. Consumption is almost inevitably reduced or even stopped altogether (if there is a great deal of consumer anger about this process). By thus decreasing the consumer’s purchasing power, this creates confusion on the one hand, and frustration on the other. Often, the reduction in product size is not even directly noticeable, so that consumers react correspondingly angrily to the reduction in product quantities supposedly initiated in secret by the manufacturer.
In a macroeconomic sense, shrinkflation can also contribute to underestimating actual inflation. This is because only apparent price increases of products in certain baskets of goods are included in this. Reductions in product volumes at constant prices are not relevant for inflation and thus distort calculations to determine the respective inflation rate of an economy.
Conclusion and forecast regarding shrinkflation and similar terms
In summary, shrinkflation is a phenomenon in which consumers receive less product for the same price. Shrinkflation is thus almost the same as inflation, only related to the quantity of the product. However, it can also go hand in hand with direct inflation – so the price of the product can increase while the quantity of the product is reduced by the manufacturer.
The consequences of shrinkflation for the consumer are lower purchasing power and a lower lifestyle – and at the same time increased, indirect inflation. Shrinkflation is often underestimated, but it actually takes place and often goes undetected.
Terms similar to shrinkflation can include „downsizing,“ „downgrading,“ or „austerity packaging.“ While the terms „downsizing“ or „downgrading“ represent deliberate reductions in the size of products or performance profiles, „economy packaging“, on the other hand, tends to stand for smaller or larger product sizes specified directly by the manufacturer, which are often even cheaper than conventional packaging sizes.