As I’m watching the Bank of Canada rate increase, noting that the prices of gas and meat have never been higher, there’s a lot of talk about inflation and greedflation, but I’m surprised more people aren’t talking about shrinkflation as part of both.
Reaching back to Economics 101, inflation is an increase in prices, when the purchasing power of money doesn’t increase with it. For example, with food prices up 10 per cent, but salaries only increasing two per cent, people are in a position where they have lost purchasing power. Three hundred dollars of after tax salary doesn’t buy as many groceries as it used to.
Canada’s inflation rate in May hit a 31-year high of 7.7 per cent. I remember my savings account as a kid actually paying interest, and here we go again. In 1983, I didn’t have a mortgage, or worry about buying groceries, or paying for gas, so I was happy for the higher interest rate on my savings; not so much today.
During the pandemic, supply chain issues resulted in increased prices. The Russian attacks on Ukraine exploded energy and wheat prices. Gas prices guzzled 48 per cent more than before, groceries chewed 9.7 per cent more. Shelter covered 7.4 per cent.
In response, the Bank of Canada increases rates, which in turn deters people from buying big ticket items like houses, cottages, boats, and other motorized toys. It also has people thinking twice before taking out a loan or using their line of credit. The net effect is a slowing of purchases, which is supposed to translate into producers having an oversupply of goods, thus the price decreases, and inflation is slowed or reversed. That’s the theory.
While waiting for that to happen, or the reason it is not happening, people are saying that greedflation is an issue. Prices are being increased more for corporate profit than for true inflation reasons. Remember the price-fixing bread scandal of 2018? Some are saying this is now happening across all categories of groceries. The jury is still out on whether that’s occurring or not, but surprisingly, few are seeing that shrinkflation is just as bad, if not worse.
What’s shrinkflation? Is your brick of cheese longer and skinnier? Is that box of cereal smaller and lighter? Are there fewer granola bars in the same size box? When the price remains the same and the volume of product decreases, that is shrinkflation. Some say it is businesses’ way of not having to pass on rising costs to the consumer, but they are taking away product.
If you shop based on per unit costs, you notice this price increase, but otherwise you may not. And what can you do about it even if you do notice? What’s worse is producers typically have a big sale on the new smaller size, so that you stock up, only to realize that the contents just don’t go as far anymore. You’ve been switched to the new size, and now the price creeps back up to “normal.”
Can corporations be blamed? Yes and no. Price fixing is hard to prove, just look at how many inquiries into gas prices have never found any collusion. Yet, the profit imperative is corporations’ mandate, not to treat people or the planet well. Until corporations are held to a new standard that doesn’t just involve them making the highest profit possible at all cost, there’s not much stopping shrinkflation or greedflation from continuing.
If you are a vegetarian living mortgage-free, biking as a means of transportation, you may not be feeling the squeeze on your budget, but as labour contract salary increases are frozen or stalled around two per cent, you may be soon.