Ever noticed your pizza getting just a bit smaller over time, while you are charged just the same. Sometimes your chocolate bar, uncannily seems to be missing a few squares. That subliminal feeling that you are getting less for your money, is actually your gut becoming aware, of ‘shrinkflation’!
Just last year the internet was in a frenzy over Cadbury removing two ‘chocolate fingers’ from their pack of 24 (while leaving prices unchanged). The word shrinkflation, quite neatly sums up this phenomenon. In essence, it refers to the subtle shrinking in size of products while their prices remain the same.
Why do Chocolates ‘Shrink-flate’
Especially with products like chocolate, whose demand is relatively price elastic, shrinkflation is quite a common occurrence. Producers are unwilling to immediately pass on increases in cost to consumers, for fear of falling revenues. Shrinkflating their products appeals to them as a viable means of passing on costs, without overtly raising prices. Prices have risen, in essence. But one is less aware of it.
Economic Implications of Skrinkflation
Being able to buy less, for the same amount of money. Sound familiar? This is because shrinkflation has the same fundamental effect as inflation. The erosion of the purchasing power of money. However, it is far more insidious.
Inflation, is calculated by measuring the changes in the average price of a basket of goods (CPI basket), over a period of time. The system has slight variations depending on country, but the crux of it remains similar. However, shrinkflation, distorts these calculations, as the basket of goods is not always updated with it in mind. Adjustments are not consistently made to accommodate the changes quantities of goods sold for the same price. What this means is that shrinkflation is largely unaccounted for in official inflation figures.
The near zero inflation rates that developed countries face today, and even the instances proclaimed to be ‘stagflation’ may in fact belie, the actual situation. Inflation, veiled in the insidious form of shrinkflation may be diminishing the purchasing power of money as we speak.
Additionally, shrinkflation is an economic signal that inflationary pressure is building up in an economy. Shrinkflation is simply the outlet that most producers of demand elastic products usually use, to pass on costs or retain higher profits. Eventually, inflation would rear its head, as cost-push pressures grow.
Taking Advantage of Skrinkflation
Since shrinkflation is a good indicator of inflationary pressures, it provides a good opportunity to prepare in advance.
The value of rare metal commodities like gold have an inverse relationship to the value of fiat currency. Investing in such commodities provides a good hedge against future depreciation of currency.
In the same vein, having a BitGold master card would put you in quite an enviable position in times of inflation, as you would see the purchasing power of your wealth grow, despite the depreciation of currency.
In summary, shrinkflation can be an insidious phenomenon, often taken for granted and overlooked, despite serious implications. At the same time, if approached proactively, with an awareness of its implications, it may be exploited for one’s own benefit.