ATTIVO

Inflation and Shrinkflation

There is a reason all your favourite chocolate bars seem smaller than when you were young – shrinkflation. This is when manufacturers, particularly in the food and drink sector, make products smaller to avoid raising prices – especially during times of high inflation. With the Bank of England today raising interest rates for a fifth time to 1.25%, and with fuel prices at a record high the squeeze is certainly on.

Shoppers tend to notice straight away when prices go up but are usually less quick to spot shrinkage. This means producers can pass on their higher costs to shoppers more subtly by downsizing their products instead of putting up prices.

Inflation in the UK, Europe and the US has been over of 8% for most of this year, pushing up prices of energy, shipping and raw ingredients, which has a knock-on effect on the price of production for many everyday items.

High inflation rates today are due to factors such as weak supply chains, the pandemic (and a steep rise in demand after lockdown), and Russia’s war in Ukraine. This conflict is a huge factor in rising food prices as Ukraine is one of the world’s largest wheat exporters, and this impact on global food supplies is forecast to get worse.

So instead of cost increases across the board, is shrinkflation a better approach that can help reduce the burden placed on all of us?