Cecil Bohanon and John Horowitz: If you don’t want to increase the price, shrink the package

During times of inflation, U.S. presidents have berated firms for daring to raise prices, even though government policies caused the inflation. Rather than raising prices, some manufacturers reduce product sizes or quantities while maintaining the same price, effectively increasing the cost per unit. This strategy is prevalent in the food and household goods sectors, where consumers are apparently more sensitive to price changes than to size reductions. This effect is often called shrinkflation.

For example, in 2021, General Mills reduced its family-size cereal boxes from 19.3 ounces to 18.1 ounces (a 6.2% reduction), and Walmart reduced the Great Value Paper Towels sheet count from 168 sheets per roll to 120 (a 28.6% reduction). In 2008, Skippy reduced the size of its peanut butter containers from 18 ounces to 15.3 ounces (a 15% reduction). Most reductions in size are not announced. However, in 2021, Tillamook announced that it would reduce the size of its ice cream cartons from 56 ounces to 48 ounces (a 14.3% reduction).

The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The U.S. Bureau of Labor Statistics writes that it “strives to capture product upsizing and downsizing in the CPI in a timely manner.” And that “the effective price changes due to size changes are reflected in the CPI.”

“Indexes that experienced the largest price increase due to downsizing were baby food (+2.81%); snacks (+2.64%); fresh biscuits, rolls, muffins (+1.59%); candy and chewing gum (+1.35%); and household paper products (+1.3%). Snacks, such as potato chips, saw frequent downsizing of their snack packs from 4.5 oz. to 4.25 oz. and an 8 oz. bag declining to 7.5 oz.”

Because only a few prices in the CPI are downsized each year (and some are upsized), the BLS states that the overall impact on the CPI is minimal, an average annual 0.01%. Last year’s 3.36% inflation would be 3.35%.

Some firms might skimp on product ingredients or quality rather than shrinking the product size or increasing the price. Hotels might reduce how often they clean rooms. A food company might switch to less costly ingredients. Firms might run chronically understaffed, increasing wait times. Restaurants might reduce portion size. When costs increase and firms try to forgo explicit price hikes, reducing product size is one answer. But most of us catch on eventually. A 10% price increase or a 10% size reduction? Six of one, half a dozen of the other.•

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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to [email protected].