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What Is Shrinkflation?: Financial Planning


Shrinkflation happens when manufacturers reduce the quantity or size of a product without reducing the price. Shrinkflation often crops up when inflation increases manufacturer costs or intensifying competition reduces demand. The effect is equivalent to raising prices, but it may not be readily apparent to consumers who focus on package price tags while ignoring changing sizes. Shrinkflation may affect food, personal care and other items. It is not well tracked by inflation measures so it can be a hidden form of inflation. Paying attention to unit costs rather than package costs is one way to spot and cope with shrinkflation.

financial advisor can help you create a financial plan to protect your finances from inflation.

Shrinkflation Basics

When the manufacturer of a product keeps the price the same while reducing the size or quantity in a package, it is called shrinkflation. For instance, a roll of paper towels may start to have fewer sheets while the price is unchanged. Coffee is a readily recognized instance of shrinkflation. Once sold mostly in 1-lb. bags, today the most common size for a package of coffee in a grocery store is 12 oz. Shrinkflation often affect food items and personal care products, but can be a factor in any category where goods and even services are sold in packages. It’s less significant when products are sold mainly by unit, such as a gallon of gasoline.

Shrinkflation is a common way for manufacturers to cope with increases in their own costs, especially when demand for their products is weak. Rather than raise prices to maintain their profit margins, they reduce sizes so their products cost them less to produce. Tax hikes can be another cause of shrinkflation.

Shrinkflation, which may also be called downsizing, is a form of inflation because it results in consumers paying more for products, although they may not realize it. After shrinking package sizes, manufacturers may go further and resort to raising prices as well if the factors that caused the shrinkflation persist.

Limits and Benefits of Shrinkflation

Since 1967, the federal Fair Packaging and Labeling Act has required packages to clearly state how much of the product is inside. The quantity has to be in numerical count, such as a dozen cookies, or weight or other measure, stated in both metric and conventional measures. However, the act does not require manufacturers to alert buyers that the quantity inside has changed.

Many consumers assume that because the package price is the same the unit price is unchanged as well. This allows manufacturers to effectively raise prices without negatively affecting consumer demand.

The Bureau of Labor Statistics, which tracks inflation with the Consumer Price Index, attempts to account for shrinkflation by following changes in products, including quantities, over time. However, in a fast-changing marketplace some shrinkflation escapes notice, at least for a time. The result is that shrinkflation causes consumers to pay more even while official measures of inflation may be relatively unchanged.

Some kinds of shrinkflation are especially difficult to track. For example, manufacturers may shrink the quality of a product by using less expensive ingredients, while keeping quantities and prices the same. Skimpflation, a term used to apply to reductions in the quality or amount of service included in an offering, may be even harder to spot.

Manufacturers usually don’t go out of their way to inform consumers that they are getting less for their money. However, sometimes shrinkflation can be seen as a positive. For instance, when Coca Cola began selling 7.5-oz. cans of soda that were more than a third smaller than their usual 12-oz. cans, it was viewed as a way for people to consume less unhealthy sugar-laden soft drinks.

Coping With Shrinkflation

SmartAsset Financial Planning: What Is Shrinkflation?

The most straightforward way to cope with shrinkflation is to check sizes and unit counts of products as well as prices. The fact that a package appears similar to the way it has always looked does not necessarily mean it contains the same quantity. Rather than focusing solely on package prices, consumers can check the price per ounce or other unit of measurement.

More generally, careful budgeting can help you keep from overspending in spite of shrinkflation. Techniques such as meal planning, avoiding impulse purchases, using coupons, stocking up on sale items, employing credit card rewards and shopping discount stores and private label brands can all save money on food and other essentials.

Bottom Line

SmartAsset Financial Planning: What Is Shrinkflation?

Shrinkflation happens when manufacturers cut costs by reducing the size of a product or the quantity contained in a package without changing the price. Shrinkflation is likely to crop up when rising inflation, slack demand or increased competition puts pressure on product manufacturers’ profit margins. Consumers often don’t notice the reduced quantity, which can help keep the manufacturers’ sales revenues from declining even though they’re actually selling less product by weight, number or other measure. One way to cope with shrinkflation is to compare prices on the basis of units such as ounces or pounds instead of looking only at the price per package.

Budgeting Tips to Beat Inflation

  • A financial advisor can help you with budgeting, which is one of the best ways to spend wisely. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to see how inflation affects your budget, SmartAsset’s free inflation calculator can help you determine the buying power of a dollar over time in the United States.

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