Economists call it "shrinkflation."
Here's what it is and how it works:
- Remember what the size of a candy bar--like a Snickers--used to be?
- Ever noticed that even the "King Size" isn't so much king anymore? That confectionary companies increasingly are pushing "Fun Size" candy bars?
- Yet, the per unit cost of the "Fun Size" is equivalent to the "King Size"?
When The Motley Monk first noticed this phenomenon, he attributed it to the Food Police and Health Nazis. They don't want the folks enjoying oversized things like candy because consuming too many King Size Snickers (or whatever) can lead to obesity and obesity, in turn, raises the cost of healthcare.
While that observation may be accurate, The Motley Monk happened upon a more likely explanation proffered by Justin Spittler, appearing in the Casey Dispatch. Spittler writes:
When I was a kid, a Fun Size Milky Way was much bigger. You actually got your money’s worth. Today, it feels like you’re being robbed blind.
But, before jumping the gun and listening to the folks on the political Left and thinking "greedy corporatists screwing American consumers (once again)," consider this: Producers of goods and services have to deal with inflation.
Yes, corporations are in business to make a reasonable profit for investors. That's the nature of free-enterprise capitalism. So, to control costs, CEOs conceal the increases they must pay to their producers if those CEOs are to keep profits at a similar level. They confront two choices:
- Increase price and decrease sales.
- Shrink size and keep (or increase) sales.
Hence, the choice to shrink that's called "shrinkflation."
Yet, as Spittler notes, shrinkflation has real-world effects in that it can negatively impact a family's budget. Consider the example of a single mom with 4 children who spends $100/week on groceries but gets 20% less food. Children's appetites don't shrink so it's obvious this mom will purchase more food, thus spending more money.
That's called "household inflation."
The problem? Most economists calculate the typical "market basket" of goods and services a typical family buys. What economists aren't calculating are discretionary items like Snickers, the number of fries/serving at McDonalds, or how many ounces in a bottle of adult beverages. As economists calculate things, it doesn’t matter if the Snickers contains 20% less chocolate, peanuts, and caramel than it did a few years back.
But, the marketplace tends to be a whole lot smarter than those highly-educated economists. When the folks in the marketplace can only afford less, they confront 2 choices:
- To decrease the quality of life by cutting back on the number of "King Size" Snickers they consume.
- To spend more money to purchase the equivalent in "Fun Size" Snickers.
Here's the fact: Inflation is now rising at its fastest rate in 5 years. Folks in the marketplace are paying more today for everyday goods and services at a rate that's 300% faster than just 2 years ago.
Compounding matters: Corporate profits are falling. Thus, CEOs confront those 2 choices once again:
- Raise prices.
- Shrink the quantity or quality of the goods and services produced.
So, caveat emptor: Unless U.S. economic policy changes in the short term, corporations will either raise prices or reduce the quantity/quality of what they produce.
Or, will it become "worthless""
Let the discussion begin...
To access the websites identified in this post, click on the following link: