BoC and Fed will react if there is ongoing inflation in 2023: Former BoC governor David Dodge
How will we know if inflation is making a comeback? Most economists are focused on the price of commodities, wages, and other basic goods and services. But history suggests they might want to keep an eye on a related phenomenon that often escapes notice: so-called “shrinkflation.”
This practice became increasingly common in the 1960s and 1970s, when manufacturers confronting runaway inflation tweaked packaging rather than hike prices. At first, the practice attracted relatively little notice: It’s difficult to discern changes in unit prices when they’re camouflaged in different-looking boxes and bags.
In fact, it was the humorist Art Buchwald who was among the first to sound the alarm. In a column entitled “Packaged Inflation” published in 1969, he lampooned the growing tendency to conceal price increases. Tongue in cheek, he praised American industry for “devising new methods to make the product smaller while making the package larger.”
This wasn’t far from the truth. As inflationary pressures rose over the course of the 1970s, manufacturers pursued a number of methods to pass along price increases. The most basic of these was so-called “downsizing” – same package, same price, fewer goods.
In late summer of 1974, for example, Woolworth’s offered a packet of pencils at its back-to-school sale for 99 cents – same price as the previous year. But as a sharp-eyed reporter at The New York Times observed, the packages only contained 24 pencils, six fewer than the previous year. The same strategy affected packets of construction paper (24 sheets, not 30).
The grocery store offered numerous opportunities for downsizers. At the beginning of the decade, that staple of postwar cuisine, Rice-A-Roni, sold boxes containing 8 ounces of the product. Soon, though, it shrank to 6.9 ounces, but the packaging and price remained the same. (Today, the rice-and-vermicelli-filled boxes remain precisely the same weight, which suggests that even shrinkflation has limits.)
This kind of sleight-of-hand became ubiquitous. Everything from cans of tuna fish to jars of spaghetti sauce contained less and less. Advocacy groups like the Consumers’ Union (now Consumer Reports) inveighed against downsizing, but the practice remained widespread.
Gumball makers may have pulled of the most brazen act of shrinkflation. As the price of sugar climbed in the 1970s, they couldn’t easily raise prices – gumball machines were set up to accept a specific coin. And they couldn’t make the gumballs smaller – the dispensers couldn’t reliably handle any other size. So they created a hollow in the formerly solid gumball. Instead of sugar, kids got some air.
Brim Dark Decaf Coffee came up with a variation of that strategy by using a proprietary “puffing” technology to boost the volume of its coffee beans, allowing it to fill what had been a 13-ounce container of coffee with only 11.5 ounces. The company claimed that this alchemical process yielded a more flavorful coffee from fewer beans.
Sometimes, shrinking products came with more emotional appeals. A smaller serving size wasn’t simply smaller; it was also lower in calories. Smaller packages were touted as environmentally friendly.
Some companies took an entirely different tack that wasn’t, strictly speaking, shrinkflation. Instead of shrinking their package, they made them bigger – and proudly advertised that fact. But what they didn’t acknowledge was that the new, more ample size was actually more expensive on a unit-price level.
For example, a chocolate bar that weighed ten ounces and retailed for 75 cents was now sold in more generous packages weighing fifteen ounces – but which now retailed for US$1.25. This clever rejoinder to shrinkflation was inseparable from it. These moves capitalized on disgust with downsizing, even if they achieved the same end.
Some states pushed back on the trend by requiring grocery stores to supply customers with a unit price for every product. Other grocery stores adopted them voluntarily, finding them a useful way to reassure customers that they had their best interests at heart.
Many of these unit-pricing systems survive in 2021. But so, too, does shrinkflation. In the past year, there have been increasing reports crafty manufacturers whittling away everything from sheets of toilet paper to servings of cat food. These have intensified in recent weeks.
If the trend continues, beware: This may signal that inflation, long dormant, may finally be resurgent.