Sneaky Shrinkflation Is Driving People Crazy

Bloomberg Opinion , July 26, 2022

Shrinkflation doesn’t fool consumers for long. People notice when their stuff runs out faster.

When a 22-pound bag of dog food bag replaces a 30-pound bag, Buddy’s appetite doesn’t shrink accordingly. If the 12-pack of K-cups becomes a 10-pack, coffee drinkers have to replenish supplies more often to keep the caffeine coming. When tomato cans go from 32 ounces to 28 ounces, sauces no longer match up with one-pound pasta boxes. Even inattentive shoppers quickly notice they’re getting less for their money.

Smaller packages don’t fool the folks who compile inflation statistics, either.

If a 16-ounce box contracts to 14 ounces and the price stays the same, I asked Bureau of Labor Statistics economist Jonathan Church, how is that recorded? “Price increase,” he said quickly. You just divide the price by 14 instead of 16 and get the price per ounce. Correcting for shrinkflation is straightforward.

New service charges for things that used to be included in the price, from rice at a Thai restaurant to delivery of topsoil, also rarely sneak past the inflation tallies any more than they fool consumers.

But a stealthier shrinkflation is plaguing today’s economy: declines in quality rather than quantity. Often intangible, the lost value is difficult to capture in price indexes.

Faced with labor shortages, for example, many hotels have eliminated daily housekeeping. For the same room price, guests get less service. It’s not conceptually different from shrinking a bag of potato chips. But would the consumer price index pick up the change?

Probably not, Church said.

Measuring inflation is hard. The goal is to capture changes in the overall price level — the numbers on every price tag — not swings in relative prices. You want to see how much the cost of living, represented by the price of a consistent basket of goods and services, has changed.

That’s different from how many hamburgers equal a gallon of gas or how many apples equal a movie ticket. Relative prices can and do shift all the time without constituting inflation. But for today’s cost-of-living basket to measure the same thing as yesterday’s, the goods and services themselves need to stay the same. And they, too, tend to change, especially when technology is involved.

BLS economists have numerous ways of correcting for those changes, but they err on the side of conservatism. They look for specific, quantifiable differences that customers can reasonably be expected to notice and care about — and that can be plugged into statistical models. A bigger TV screen with a higher-definition picture is probably more valuable to consumers. But what about a hotel room with nicer sheets? That’s trickier. The less measurable the change, the harder it is to correct for.

During the 2000s and 2010s, inflation was probably overstated because of unmeasured quality increases. Now there’s the opposite phenomenon. Quality reductions have become so pervasive that even today’s scary inflation numbers are almost certainly understated.

The paper napkins at a local smoothie shop, a friend points out, have gotten so thin and small that they are “almost useless.” But price trackers would look only at the smoothie itself without accounting for the lousy napkins.

A Starbucks latte may cost the same, but if the store now shuts at 4:00 p.m. instead of 6:00 p.m. — or varies its hours unpredictably depending on who’s available to work — customers are getting less for their money. Shorter, less predictable hours have become common in many service businesses.

Take my recent trip to Bank of America. Arriving around 3:15 to make an inquiry for my condo association, I found the metal security gate down and only the lobby ATMs available. A sign said the branch was open until 4:00 — already a reduction in hours from the old schedule — but it wasn’t. At a second branch, where I was turned away because closing time was approaching, I met a mother and adult daughter who were on their third branch visit, with no success. Coming back another day, they said, meant taking more time off from work. That cost wouldn’t make it into any official inflation measurements.

Similarly, airline ticket prices dropped slightly in June, but that doesn’t mean the cost of air travel is down. Bags are five times more likely to go astray than a year ago, and security lines are insanely long. On July 2, I spent four hours waiting with thousands of other passengers to get through security at Amsterdam’s Schiphol Airport. Whether or not the ticket price was greater than a year earlier, the intangible cost certainly was. While this example is extreme, longer waits for any kind of service, from doctors’ appointments to sandwich orders, are becoming common.

Even if incomes keep up with inflation, quality declines are aggravating and depressing. They make consumers feel powerless and taken for granted, which can lead to angry confrontations. They create a pervasive sense that the world is getting worse. They exact a toll that economic statistics can’t capture.