Shrinkinflation is a term that combines 2 words. The word "shrink" and the word "inflation". Shrink refers to a reduction in size. Inflation refers to the expansion of monetary supply resulting in increase in prices. Shrinkflation refers to the practice of reducing the size of products in an inflationary setting.

Businesses, in an attempt to maintain their profit margins in the setting of rising prices of raw materials and labor, will attempt to transmit some of the excess cost to the consumer. They will achieve that by reducing the size of a product, instead of rising its price. Psychologically, a consumer will be more negatively impacted by the rise in price than by a reduction in the size of a product.

This practice may be effective for some time, so as the consumer is not concerned about the size reduction of the product. However, experience tells that once the consumer becomes aware of the size reduction, the reaction is not good. Now that we enter an inflationary period, we will be able to see examples of shrinkflation.

This post is intended to only raise awareness. In order to make actual financial decisions please contact your financial advisor and/or tax advisor prior to making the decision.

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