Submitted by Bill Rice, Jr., freelance writer in Troy, Alabama. He can be reached at wjricejunior@gmail.com.
When considering the topic of inflation—arguably the most important measure of our economy—what information gives us the truest picture of reality? The minutes from the most recent Federal Reserve Board meeting? The government’s latest Consumer Price Index (CPI) number? Or that roll of toilet paper down the hall in the bathroom, the one that’s now too narrow to fit on your old toilet paper holder?
My mission was to determine whether “shrinkflation” is occurring more than it did in the past. Shrinkflation is the practice whereby manufacturers reduce the size, weight, and/or contents of a package without lowering the price. Effectively, it’s a stealth form of inflation.
Another element of my project was to examine the question of whether official inflation might, in fact, be understated.
After two months researching the topic, do I believe shrinkflation is happening more often than it did in the past? Yes, absolutely. Two caveats: shrinkflation has been happening for decades, and any increase in the practice is somewhat difficult to quantify. But I am going to try.
Brian Todd, president of the Food Institute, said the practice has been going on as long as he’s been in the business (almost 40 years). “Downsizing has occurred in numerous food and non-food items over the years,” he said in an email.
Edgar Dworsky, a consumer advocate in Boston, added that the practice can be traced back to the early 1900s. As vending machines could not be reconfigured to accept, say, a nickel and a penny when prices increased, the solution was to reduce the size of the product in the machine.
Ron Paul traces the practice back thousands of years to the days when a silver or gold coin would be “clipped.” Paul, 83, can remember when a candy bar cost a nickel. “All of a sudden the candy bar is a dollar, and it’s smaller!” he exclaimed.
So shrinkflation is nothing new. But is the practice accelerating?
Steve Reed, an economist with the Bureau of Labor Statistics, told me the BLS does not track trends in downsizing or shrinkflation per se. “In terms of our program, we would consider that a little bit out of scope,” said Reed, who did acknowledge that he has little difficulty finding examples of downsizing in his own trips to the grocery store. (Reed told me that his mother joked to him that “ice cream will soon come in a thimble.”)
The UK’s Office of National Statistics has, in fact, published two studies on shrinkflation. The ONS found that price quotes for 2,529 products had been reduced in size or weight between 2012 and 2017. A follow-up study from 2015 to June 2017 found that price quotes for 206 products had been shrunk, too. But consider: the ONS surveys tens of thousands of prices and today’s grocery stores might contain 40,000 items, so the figures might not be statistically relevant.
Mark Jones, a partner at the UK law firm Gordons, characterized the increase in shrinkflation as “acute in the area of grocery sales.” The trend, in his opinion, accelerated noticeably during the economic downturn of 2008 to 2009. He added that the topic has become “a big story” in the UK.
A 2016 study of U.S. breakfast cereals over a three-year period found that “15 products suffered a reduction in packet size, and in the majority this resulted in an increase in the relative cost for each ounce of cereal.” Sylvain Charlebois, professor in Food Distribution and Policy at Dalhousie University, estimates “anywhere between 15 to 20 percent…if not more” of all packaged food products in the U.S. and Europe have “shrunk.”
Dworksy cannot state categorically that the practice is occurring more frequently than it did in the past. However, “you can go up and down the aisles” in a supermarket and see it, he said. Indeed. Based on numerous sources, I was able to develop a partial list of products that seem to have shrunk, or whose packages offer less items than they once did. The list includes: cookies (package sizes and in the case of at least one popular brand, the cookies themselves), toilet paper, candy bars, chewing gum and other confectionary products (like Cadbury Eggs), ground pepper, tuna, yogurt, ice cream, orange juice, coffee, bags of tea, sugar, potato chips, toothpaste, deodorant, cake mix, cereal, blocks of cheese, paper towels, napkins, paper plates, crackers, hot dogs, bacon, frozen dinners, heads of lettuce, canned vegetables, frozen vegetables, spaghetti sauce, canned tomatoes, mixed nuts, shaving cream, hair spray, bars of soap, tubs of margarine, detergent, bleach, shampoo, pet food, (some brands of) beer, (some brands of) hard liquor, diet shakes, diet bars, frozen pizza, peanut butter, mayonnaise, Gatorade (in some stores), vitamins, over-the-counter medicines, and even newspapers (page widths have shrunk from 16 inches in the early 1950s to 11 inches in most papers today).
Given the difficulty of finding apples-to-apples comparisons of product prices and sizes at different points in time, I embarked on my own Internet search.
The best source I found was a survey of prices (which does include package sizes) conducted by the Morris County New Jersey Library. Working from this historical source, I picked 30 staples at random for my own “basket” comparison. My analysis focused on the years 2003 to 2014, when the library stopped doing its survey.
I concluded that 25 of these 30 products had probably experienced reductions in sizes or net weights.
I also calculated that the nominal rate of price inflation for these products. Interestingly, for the vast majority of them, the rate of inflation had exceeded the CPI’s official rate of inflation, often by large margins.
For example, in 2003, a jar of Hellman’s mayonnaise was $1.99 and was sold in a 32-ounce container. In 2013, the mayonnaise was sold in a 30-ounce container for $4.59 (15.3 cents an ounce). Over 10 years, the per-unit price increase was 146.7 percent compared to the CPI “food at home” figure of 30.3 percent.
Skippy Peanut Butter was $2.19 in an 18-ounce jar in 2006 (12.1 cents an ounce). In 2014, it was sold in a 16.3-ounce container for $3.29 (20.2 cents an ounce). The price increase in eight years was 67 percent, compared to food-at-home inflation from 2006 to 2014 of 24 percent.
Generally speaking, over a period of 11 years, shoppers at one Morris County, New Jersey, grocery store paid more while often receiving less.
To be fair, prices did not increase across all categories. Several items in my “basket” decreased in price or experienced price increases below the rate of official inflation.
For example, Brian Todd pointed out that turkeys were being promoted at his local supermarket last Thanksgiving for 79 cents a pound—the same price as the early 1960s.
As their own costs rise, manufacturers are faced with several choices, none particularly appealing. They can absorb these price increases or they can simply raise prices to at least wholesale prices.
Or producers of America’s staples can reduce the size of their packages. The thought being that a typical shopper—interested primarily in price comparisons—might not notice a subtle reduction in a package’s size, or may not perform a unit-price comparison. (A 2014 study found that “consumers are about four times as sensitive to price as they are to package size” and that “downsizing as a hidden price increase can maintain or increase profitability.”)
Manufacturers have a fourth option to deal with rising production costs—they can substitute cheaper ingredients or raw materials, often referred to as “reformulation.” It’s another tactic that may or may not be happening more these days. (Many consumers simply suspect that their favorite long-time brands “tastes different” or “don’t taste as good.”)
I was also curious to see if shrinkflation had occurred in times of much higher inflation.
In the 1970s, inflation averaged 7.25 percent and reached a high of 13.5 percent in 1980. From 1995 to 2018, official inflation averaged only 2.19 percent. This decade it’s averaged, so far, just 1.8 percent.
Yet in the 1970s, through the first two years of the Reagan administration, manufacturers did not engage in shrinkflation to the extent they have over the last two decades. Bags of sugar were not reduced from five to four pounds. Cans of coffee did not go from one pound to 11 ounces. Tubs of ice cream were not shrunk from a half gallon to a quart and a half.
What gives? Why—in a period of allegedly low and contained inflation—has shrinkflation become more conspicuous?
One obvious answer is that wages did a far better job of keeping up with inflation in the ’70s. But something else changed. The government changed the way it measures inflation.
While a summary of “improvements” in BLS methodology is beyond the scope of this article, it should be noted that plenty of people view CPI numbers with a high degree of skepticism (here, here, here and here).
These skeptics point out that the government has a strong incentive to understate inflation. This is largely due to the fact that COLAs (Cost of Living Adjustments) paid to 67 million Social Security recipients are tied to the CPI. If military and federal pensions are included, more than 71 million Americans (21.7 percent of the country’s population) receive pensions or disability payments—and COLAs—from the federal government.
“It’s certainly in the government’s interest to adopt (newer methodologies) … because it holds down the fiscal expenditures indexed to the CPI,” said Dr. Jeffrey Herbener, chairman of the economics department at Grove City College.
Also, if “official” inflation was higher, interest rates would almost certainly be higher and the government would be forced to pay even larger amounts to service its debt. (In 2018, the federal government spent $371 billion to service its debt, $39 billion more than it spent in 1975 to cover ALL its expenditures.)
For my part, I came to view shrinkflation as simply another piece of evidence that supports the contrarians’ view that “real” inflation is almost certainly higher than official inflation.I suspect it is telling us that the inflation we see with our own eyes is greater than the inflation figure we read about in The Wall Street Journal.
That is, that ever-shrinking roll of toilet paper might be telling us something the government doesn’t want us to hear.
via ZeroHedge News http://bit.ly/2GrhVfw Tyler Durden