OPINION
Ammar H. Khan
Shrinkflation and its discontents
No consumer or wholesale index can accurately capture shrinkflation, so it often goes unnoticed in policy circles, even though a consumer can sense it, but can’t quantify it. Shrinkflation is a consequence of a permanent erosion in purchasing power as sellers develop new products to cater to a reduced level of real income, or purchasing power. A secular decline or flattening of real income for a large section of population has adverse outcomes for sustainable economic growth, and income inequality. Depending on which side of the fence one is on regarding inflation, whether it is cost-push, or demand-pull, barely anyone very passing year, the size of a cookie keeps reducing. If is on the side of shrinkflation which just gradually shifts overall earlier there were four cookies in a pack, one fine day there consumer preferences. Another adverse effect of shrinkflation is would be three, and so on. It is also not rare to find the lack of innovation, and product diversification. A classic Schumquality of an edible deteriorating over the years, whether peterian growth model suggests that as overall innovation in an it is the quality of chocolate or the sheer texture, there is economy increases, and as the number of overall products increase, gradual deterioration. Another great example is bread, if the frontiers of economic growth are gradually expanded resulting the price doesn’t change, the size goes down. Lately, one can even find in growth across the board. However, shrinkflation threatens a few slices of bread packaged together. More recently, one can even such innovation or product driven growth. find margarine being sold in tubes like its toothpaste. The price of these If an economy is plagued with regular bouts of shrinkflation, products doesn’t change much, but the quantity and quantity deterioit is not primed for product expansion driven growth as sellers do rate. This phenomenon is called shrinkflation. not see a thriving market for development of new products and Shrinkflation is the more lethal and discrete cousin of inflation. more innovation. Another casualty of shrinkflation is margins – it While it is possible to measure inflation through a number of methodolis due to maintaining a certain level of profitability margin that ogies, it is nearly impossible to measure shrinkflation over a long enough product quality and quantity is reduced. However, there is only timeline as there are no standardized products that can be measured. As up to a certain extent that quality and quantity can be comproinflation represents an erosion of purchasing power, shrinkflation determised upon, eventually a product is silently dropped from the mines a potentially permanent deterioration in the quality of products, market, as the seller deems it impractical to sell it in a market. and eventually lifestyle. Eventually, imported versions, or even smuggled versions of the Shrinkflation is most common in edible products, the demand of same product start appearing on shelves because the demand conwhich is highly elastic. A slight increase in price can trigger the substitinues to exist but not supported by supply economics. tution effect and increase demand for a competing product. As costShrinkflation is a consequence of consistent erosion of push inflation increases the overall cost of production and distribution, purchasing power, which would be a function of both inflation, margins start to erode. In order to maintain those margins, a seller can as well as general stagnation in wages. Although its impact is not either reduce the size of the product, or skimp on quality -- instead of apparent in the short term, its impact is critical in the long-term high-quality chocolate, they can use mid-tier chocolate, and so on. As as entities evaluate investment and product expansion decisions successive bouts of inflation take hold over a long-enough timeline, the based on potential purchasing power. A weakened purchasing overall quality of the product continues to deteriorate, till the time the power or economic environment would not create a favorable case product remains no match to its predecessor. for fresh investment, or product expansion. Shrinkflation is rampant in Pakistan, whether it be cookies, bread, beverages, or something as mundane as detergent. A consequence of the same being that most products manufactured locally pale in comparison to their imported counterparts, largely due to utilization of substandard ingredients to save costs, and maintain margins. This The writer is an also disincentivizes any fresh investment, or even divestment which can be seen in the case of many listed independent companies in consumption & pharmaceutical space either going private, or divesting from a market altogethmacroeconomist and er. Those that continue to operate are largely trading houses, rather than formidable manufacturing units. energy analyst. Policy makers need to consider shrinkflation as a symptom, and find a cure for that, and that cure lies in tapering down inflation, which in our case is mostly a supply driven phenomenon. Excess inflation over an extended period of time signals to investors potential for negative real returns, decisions regarding which become evident in the phenomenon of shrinkflation.
“Homo homini lupus” - man is wolf to man
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