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Decoding Shrinkflation

Decoding Shrinkflation

As manufacturers in various sectors navigate escalating production costs, many are resorting to “shrinkflation” as a survival strategy. This phenomenon sees beloved products appearing to shrink in size, not due to scarcity, but in response to a complex economic environment. Shrinkflation impacts both consumers and the market.

So, what exactly is shrinkflation?

Poonpong Naiyanapakorn, head of the Trade Policy and Strategy Office (TPSO), describes shrinkflation as the practice of reducing a product’s size or quantity while keeping the price the same or slightly increasing it. This tactic, commonly seen in the food and beverage industry, helps manufacturers uphold profit margins amidst escalating production expenses.

Typically, shrinkflation involves decreasing a product’s quantity without adjusting the price. This allows companies to sidestep an overt price increase and maintain revenue streams. In a broader economic sense, shrinkflation may also refer to a scenario where the economy contracts while prices surge.

The Consumer Price Index (CPI) gauges inflation by monitoring price changes for a selection of goods and services that consumers commonly purchase. These items span food, housing, clothing, transportation, healthcare, leisure, education, and communication.

Using a fixed basket of consumer goods, the CPI calculates inflation by comparing prices in different periods. TPSO employs a method to measure inflation that considers changes in product prices based on their weight. If a manufacturer trims a product’s weight while keeping the price steady, the cost per unit rises, indicating a rise in inflation.

The term shrinkflation combines “shrink” and “inflation” to encapsulate this practice, representing a concealed form of inflation. Rather than hiking prices overtly, manufacturers opt to retain prices while diminishing product sizes.

While the end product’s price remains unchanged, the cost per unit weight increases. Shrinkflation, therefore, remains a covert inflationary force, albeit cleverly concealed.

The impact of shrinkflation on consumers is far-reaching.

This covert inflation may strain individual budgets and hinder expense planning. Moreover, downsized products could lead to increased wastage as consumers might need to purchase more to meet their needs. This ripple effect contributes to environmental issues like heightened packaging waste and carbon emissions from increased production and transportation.

Despite consumer challenges, many manufacturers see shrinkflation as aligned with modern consumer preferences. They argue that consumers now favor compact, easily stored products. Some suggest that smaller portions help curb overconsumption, promoting health and well-being.

Shrinkflation is spreading globally, with businesses and retailers adopting this strategy to navigate escalating costs. Another tactic, “skimpflation,” involves producing similar-looking products using cheaper ingredients to cut costs.

While the Commerce Ministry monitors prices to curb the cost of living, consumer perception of shrinkflation varies. A recent Ipsos survey in Thailand revealed that many consumers noticed dwindling product sizes and rising prices, shaping diverse opinions on the acceptability of shrinkflation.

Though laws in Thailand offer consumer protection, no specific regulations address shrinkflation. Even as the government plans reforms, concerns persist about the potential exacerbation of shrinkflation.

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