As inflation reaccelerates and price pressures remain elevated, President Joe Biden and his administration have repeatedly claimed that a combination of shrinkflation and greedflation has contributed to today’s persistent inflationary challenges. However, one economist says how the private sector responds to inflation is not contributing to it.
Shrinkflation, the practice of reducing product packaging while keeping prices unchanged, has been prevalent throughout the U.S. marketplace, whether the size of a bag of potato chips or the number of sheets in a roll of toilet paper.
Greedflation is the concept that businesses are raising the price of their goods and services more than their costs have increased.
Recent studies have suggested that many Americans believe these practices are causing inflation.
Allison Schrager, an economist and senior fellow at the Manhattan Institute for Policy Research, disagreed that inflation can be blamed on greedy corporations.
“First, there is no reason to think corporations have suddenly become greedy,” Ms. Schrager told the Senate Banking Committee at a May 2 hearing. “It is natural to increase prices when facing a period of high demand. This can feel unfair sometimes, but it is an important part of market functioning.”
She listed two main contributors to elevated prices.
The first is high demand: consumer spending is rising, the labor market continues to be robust, and the GDP is expanding.
“And prices tend to rise more when demand is high,” Ms. Schrager noted. “This price adjustment is how the market rations goods.”
The second is that fiscal policy is still loose without any pullback in government spending.
“While monetary policy has become more restrictive, fiscal policy remains very loose, with continued infrastructure spending, subsidies to industries such as chip manufacturing, clean energy, and student loan forgiveness,” she added. “This loose policy worsens inflation by adding more demand to the economy and adding further to the debt.”
According to Dr. Ali Bustamante, an economist at the University of New Orleans, inflation is being fueled “by corporate profiteering related to firms’ price-setting power.”
“There is evidence that large corporations are engaging in pricing strategies that are contributing to elevated prices,” he said, adding that markups and other “sophisticated pricing strategies” are exacerbating inflation pressures.
In some instances, shrinkflation can account for a significant percentage of price increases consumers contend with, says Bilal Baydoun, the director of policy and research at Groundwork Collaborative.
“Indeed, big profits increasingly come in smaller packages,” he told lawmakers.
But while some experts recommend government tools can help clamp down on the shrinkflation trend, a chorus of economists says these actions would do more harm than good.
“In an inflationary environment, firms must decide whether to raise their headline prices or trim product sizes,” wrote Ryan Bourne, an economist at the Cato Institute, in March. “Banning ‘shrinkflation’ is effectively a mandate to raise package prices, rather than pursuing a size‐price bundle that some (particularly low‐income) consumers might prefer.”
The War on Shrinkflation
Shrinkflation has recently captured national attention, prompting even the Cookie Monster to weigh in on the discussion.
“Me hate shrinkflation! Me cookies are getting smaller,” he said on X (formerly Twitter).
During Super Bowl weekend, President Biden called out shrinkflation and effectively blamed corporations for the above-trend inflation figures impacting consumers.
“It’s called shrinkflation. You get charged the same amount, and you got about, I don’t know, 10 percent fewer Snickers in it,” President Biden said in his State of the Union speech.
Additionally, the White House recently launched a joint Department of Justice-Federal Trade Commission strike force to combat “unfair and illegal pricing” in the marketplace.
On the legislative side, Democratic lawmakers in both chambers introduced the Shrinkflation Prevention Act that directs regulators “to issue regulations to establish shrinkflation as an unfair or deceptive act or practice.”
“From Doritos to Oreos to even a roll of toilet paper, big companies are giving you less but offering the same or higher price,” said Sen. Elizabeth Warren (D-Mass.) in February. “Corporate executives thought we wouldn’t notice, but they’re wrong.”
Republicans say that the current administration is using shrinkflation as an excuse to cover up President Biden’s policies that they assert have resulted in inflation.
Rep. Elise Stefanik (R-N.Y.) called President Biden’s pre-Super Bowl shrinkflation claims “truly offensive.”
“It is truly offensive that Joe Biden and the White House think the American people are stupid. Only the sycophant stenographers in the mainstream media lap up this desperate attempt from Joe Biden to pass the buck,” Ms. Stefanik wrote on X.
Critics have cited a recent analysis by the Bureau of Labor Statistics that shows shrinkflation has only accounted for 2.5 percentage points of the 26 percent increase in the price of snacks from January 2019 to October 2023.
“How do these price changes hidden as size changes affect inflation estimates? They don’t have much effect on overall inflation,” the federal agency stated.
Shrinkflation Is Nothing New
Despite the debate surrounding shrinkflation, it is not a new phenomenon in the United States or across the globe.
In the 1980s, American Airlines saved a hefty sum of money by removing one olive from its salads served to passengers.
In 2017, Toblerone widened the gaps between its triangular chocolate chunks.
Ferrero announced in February 2021 that it would shrink the size of Nutella jars in Europe without hiking prices.
The UK Office for National Statistics found that more than 200 products, including bread, jam, meat, and syrups, shrank between 2015 and 2017.
From The Epoch Times
