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The shrinkflation myth

Feb 11 2014 07:23
*Adriaan Kruger
Port Elizabeth - Something is wrong. You seem to crave another bite of your favourite chocolate bar, and the kids seem to use more toilet paper than before.

And is it just my imagination, or is the jar of peanut butter smaller than it used to be?

This is nothing new, but somebody recently put a catchy name to it and everybody is starting to talk about shrinkflation. Shrinkflation is the phenomenon where products are getting smaller, but the price consumers pay stays the same.

It seems to be more prevalent or noticeable with food or snacks. The most extreme example popped up a few years ago when shops started to sell bite-sized chocolate bars, one of which was a small chocolate with only two blocks.

Consumers also need to check other products when they stand in front of a shelf. The standard packaging for a bag of charcoal or briquettes used to be 5 kg, but now some packets contain only 4 kg which costs just a fraction less than the competitor's 5 kg. Some brands of motor oil now sell in 4 litre containers instead of the common 5 litres.

Consumers see this as a devious way to hide price increases, and could even feel that they are being cheated. Even retail chains are cautious to comment on the trend and referred Fin24’s queries to suppliers, saying they are unable to answer questions about individual producers’ packaging strategies.

Some people also think that shrinkflation hides the true inflation rate, and that the official inflation figures are lower than they are in actual fact.

This is not the case. Statistics SA takes into account any change in the size or quantity of products when calculating the inflation rate “when the size of the replacement item differs from that of the previously priced item”, according to its official procedure.

This is in line with international practice, and the calculation of the inflation rate is adjusted whenever “weight, dimensions or purity of composition changes”.

This is quite simple to achieve. StatsSA uses 10 different baskets of products and services that households typically buy. These baskets are selected on the basis of its Income and Expenditure Survey conducted every five years. The last survey included 31 500 households around SA.

Each basket contains about 350 items, for which prices are collected from retailers every month. If any of the products changes in size, packaging or volume, StatsSA would scale the price of the new product by the ratio of the change in quantity.

The official inflation rate will thus be adjusted for the smaller packaging. In short, shrinkflation does not really exist.

A more interesting challenge when calculating the inflation rate is dealing with changes in quality, which are more difficult to measure. StatsSA started to take changes in quality into consideration in 2013.

It uses an internationally accredited method to attempt to estimate the market value of any difference in quality, and adjust the consumer price index accordingly. The idea is to try to measure an improvement in products and thus an improvement of our standard of living, and relate this to price increases.

If one does not consider improvement in quality, the official inflation rate will peg inflation higher than it actually is. We can argue that this has been the case since SA authorities started to calculate the inflation rate nearly 100 years ago - in 1917.

 - Fin24

Do you agree that products are getting smaller while the price you pay stays the same? Give us your take and send us your pics and you could get published.

*After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at Nelson Mandela Metropolitan University.



   
 

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inflation  |  sa economy
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