Allysia Finley of The WSJ wrote a recent article saying it was everywhere. But about a year ago I posted something about research by the Bureau of Labor Statistics that shows that it does not make much impact on the CPI.
First there will be excerpts from Finley's article then the post from last year.
See ‘Shrinkflation’ Is in the Air, Online and Everywhere Else: You pay more for ‘extras’ that used to be part of the base price. The CPI doesn’t measure that. Excerpts:
"Shrinkflation,
paying the same price for noticeably smaller quantities of the same
thing, isn’t appearing only in the grocery aisle. It’s everywhere.
Americans may be paying around the same prices as they did a year ago,
but they are often getting less.
Take
airline fares, which the Labor Department’s consumer-price index shows
fell 9.4% during 2023. That sounds nice, until you consider that the calculation
heavily weighs the “lowest available fare” for a trip—typically offered
by budget airlines, which require customers to pay more to bring a
carry-on and select a seat in basic economy. Flyers also get less
legroom and a charge for beverages or snacks.
Budget
airlines have been slashing their fares to attract more customers,
though legacy carriers have also increasingly unbundled their prices to
compete. That’s why you’ll have to pay $50 extra if you don’t want to be
assigned seat 32B, plus $30 more for a carry-on. Some Americans may
like differentiated prices, but most don’t like paying more for the same
services they used to get as part of the ticket cost."
"Consider
video streaming services, most of which have been losing money. Several
increased prices last fall by around 20%. Disney+’s ad-free service
rose from $11 a month to $14. Yet the CPI shows that prices for video subscription services have risen a mere 2% over the last year. How can that be?
Streaming
services have recently introduced lower-cost plans with ads. If you
don’t want to pay more, you will have to suffer through commercials.
Shrinkflation has even come for your Amazon Prime account. The company on Jan. 29 began charging an extra $2.99 a month—or $35.88 a year, a 20% premium over a standard Prime subscription—to stream movies and TV shows without ads."
"Why does the CPI show that health-insurance prices dropped 27.1% since December 2022? The Labor Department calculates health-insurance inflation using a convoluted method that relies on retained insurer earnings as a proxy for prices.
Again,
inflation numbers don’t tell the full story. As another example, the
Federal Reserve’s preferred inflation gauge—the personal consumption
expenditures index—takes into account so-called substitution effects.
But when you buy chicken because you can’t afford beef, you’re still
suffering the effect of inflation."
Now the post from last year How does the Bureau of Labor Statistics account for shrinkflation in calculating the Consumer Price Index?
See Getting less for the same price? Explore how the CPI measures “shrinkflation” and its impact on inflation by Kari McNair of the BLS. Excerpts:
"You may have noticed recently that you’re going through a roll of paper
towels at a faster clip or that there seem to be fewer tortilla chips in
the bag. This isn’t your imagination! The concept is known as
downsizing or shrinkflation. (We will use the term downsizing in this
article.) As input costs increase and costs to create a product rise,
companies can increase the list price of a good or they can offer a
smaller amount of the product for the same price. So, a candy bar’s size
might change from 1.6 ounces to 1.5 ounces, yet the price stays the
same. In other words, the price per unit the consumer pays increases as
the amount they purchase decreases, while the price they pay at the
register remains the same."
"Given how easy it is to miss downsizing when you are shopping, you
might be wondering if the CPI is able to reflect these types of price
changes accurately. The CPI strives to capture the price change caused
by downsizing through accurate data collection and effective price
calculations. Our data collectors and economists identify changes to the
goods and services used to calculate the CPI. Data collectors collect
prices for the same unique set of goods and services over time. This
includes identifying, verifying, and notifying each other of product
size changes so the effective price change experienced by consumers can
be accurately reflected in the CPI. When an item goes through downsizing
or upsizing, the data collector reports the new data, updates the
product description, and sends a message to economists in the national
program office noting the product size change. Data collectors do not
record information such as the number of chocolate chips in a cookie or
the number of pepperonis on a pizza, however, they do record attributes
such as weight and volume.
Our economists continuously review goods and services in the CPI.
They identify product downsizing through monthly reviews of CPI data and
online research. For products data collectors identify with a size or
weight change, economists will conduct further research on the
manufacturers’ websites, online shopping websites, and other sources to
verify if the product is experiencing product downsizing or upsizing.
Once the economist has verified that the item is experiencing product
size change, they will notate the item and search the CPI sample for the
same item. To ensure downsizing is captured in a timely manner, the
economist will notify the data collectors that a product is experiencing
downsizing so that they can be on the lookout for a size change.
Data collection procedures vary for different products and services;
therefore, the impact of product size change is handled differently
based on the item. An effective price per standard size, usually a price
per ounce, is calculated for items where size is reported. The
effective price per ounce is the collected price divided by size. For
example, if a half-gallon (64 oz) of Brand A vanilla ice cream is priced
in January 2021 at $5.99, then the effective price per ounce is $5.99
divided by 64 oz or $0.093 per ounce. If, in February 2021, the same
Brand A vanilla ice cream is reduced in size to 60 oz, but the price is
still $5.99, the effective price per ounce would be $0.0998 per ounce.
This results in a 6.7-percent increase in the price per ounce of the ice
cream, and the CPI would include this price increase. Our economists
even adjust for items that do not have a weight, like toilet paper. For
example, when the number of sheets per toilet paper roll changes from
220 per roll to 200, the economist will adjust the data to show a
10-percent price-per-sheet increase.
CPI economists track identified downsizing and upsizing in the CPI sample each month."
"product size changes (upsizing and downsizing) increased the CPI all commodity and services index by 0.01 percent per year."
"the impact of product downsizing at the all commodity and services level
is minimal, with an average annual effect of 0.01 percent per year, so
while consumers may notice shrinkflation at the grocery store, it has a
very small impact the overall inflation picture they face."
