‘Shrinkflation’ is just inflation

Last week, PBS reported:

President Joe Biden is going all-in on calling out “shrinkflation.”

The term applies to a seemingly covert way for companies to raise prices by ever so slightly reducing the size of their products. There’s suddenly fewer pretzels in the bag, less toothpaste in the tube and shorter candy bars.

“It’s called shrinkflation,” Biden said in his State of the Union speech on Thursday night. “You get charged the same amount and you got about, I don’t know, 10 percent fewer Snickers in it.”

This is isn’t a new thing. Back in 2022, I wrote about how Domino’s was cutting the number of wings per portion from ten to eight while keeping the price for the portion at $7.99. This would be textbook “shrinkflation,” if shrinkflation was in any textbooks.

Except that shrinkflation is just another name for inflation. As I wrote back then:

Previously, you were getting 10 wings in your carryout for $7.99 which worked out at 80 cents per wing. Now, when you are only getting eight wings in your carryout for the same nominal price, you are paying $1.00 per wing: that is a hefty price increase of 25 percent per wing.

What this shows is that inflation does not simply manifest itself in paying a higher nominal amount for the same quantity of stuff, but can also manifest in paying the same nominal amount for a smaller quantity of stuff. Even worse, in this situation it isn’t clear that official figures do a great job of picking up this type of inflation. [Emphasis added]

PBS reported:

The president’s focus on shrinkflation is part of a broader strategy to reframe how voters think about the economy before the November election. Biden is trying to deflect criticism about high prices and instead pin the blame on big business.

As I wrote on Tuesday, stubbornly elevated levels of inflation — and, consequently, interest rates — will be a problem for President Biden in an election year. He has never really understood what causes inflation — or, if he has, his public pronouncements have hidden the fact remarkably well — but he is going to need a better anti-inflation strategy than simply giving it a new name.