Shrinkflation and Global Crisis Exacerbate Inflation

Gas Prices in Thunder Bay on April 30 2020

Many businesses are shrinking the size of their products to maintain or increase their profits in a process known as shrinkflation, and global crises like COVID-19 and the war in Ukraine are exacerbating the issue, according to an economics expert at Binghamton University, State University of New York.

In recent years, manufacturers who can’t raise the cost of their products without fear of upsetting their customers have instead shrunk them, says Kenny Christianson, a lecturer in economics at Binghamton University. For example, Chobani flip yogurts which were once 5.3 oz. are now just 4.5 oz. for the same price; $2.99 bottles of Gatorade have been reduced from 32 oz. to 28 oz.

There are smaller portions in many products in the grocery stores especially in products that you can’t see because of their packaging.

The weight of the product is always printed on the packaging, but honestly, few consumers seem to really pay attention.

“You can increase revenues if you just raise the price of your product but, especially in competitive markets, it might be difficult to do that because you might lose a lot of your customers to their rivals if you raise your prices too much,” said Christianson.

“You have to find other ways of increasing your profits or meeting your bottom line. So in order to do that, sometimes they can just either reduce quantity and keep the price the same or reduce quality. And then (that way, you’re able) to at least keep your prices a little bit lower than it would be if you had to keep the same quantity and quality,” adds Christianson.

Christianson comments that this phenomenon has worsened due to the impacts of the COVID-19 pandemic and the war in Ukraine.

“Labor costs and costs for fuel have been rising a lot because of COVID and shortages,” said Christianson. “And recently, increased demand has also been raising prices a lot. And so firms are faced with shrinking profits and maybe losses if profits shrink too much. And because of that, they’ve got to try to find some ways of trying to gain profits.”

The biggest issue impacting the price of many products is the cost of the energy to manufacture, and then transport the goods. Diesel and gasoline prices have in effect almost doubled over the past 12 months.

That in itself has impacted prices of many products, and services too.

Inflation has cause the Bank of Canada to boost interest rates, that is also having an impact on housing prices which have been in a major upswing in recent years.

Over the past two years, the cost of building materials, especially lumber has remains volatile. Right now there is downward pressure on the price of lumber, and prices are falling.

However the one thing in the marketplace right now that is for certain is uncertainty. No one knows what is going to happen with prices.

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