In economics, inflation is traditionally defined as a sustained rise in the general price level that can reduce the purchasing power of a currency. Inflation can be expected as it is a natural product of economic growth. However, over the years, economists have noted some hidden forms of inflation that have evolved as businesses have become ever more creative in their efforts to maintain their profit margins. In this article, we’ll explain three hidden inflation theories – Shrinkflation, Skimpflation and Greedflation – and explore each in more detail.
What is Shrinkflation?
Shrinkflation is a process whereby a product is reduced in quantity, quality or size but kept at the same price as before. This can be an intentional action taken by businesses to reduce costs or increase profits without increasing prices, making the actual value of the product a lot less than the customer anticipated.
For example, a chocolate bar that originally cost £1.50 but has since been reduced in size to 80g, yet still retails at £1.50, would be an example of shrinkflation.
What is Skimpflation?
Skimpflation is a common phenomenon in which the quality of a product is reduced while the price remains the same. This is usually done to reduce costs and to avoid passing the cost onto the consumer.
For example, a company recently released new products with the same packaging, labels, and prices as the original products. But upon closer inspection, the product had been reformulated to use lower quality ingredients and only contained half the recommended amount of product. For example, if a bottle of shampoo originally contained 250ml of product but now contained only 125ml yet still charged the same, this would be an example of skimpflation.
What is Greedflation?
Greedflation is a type of hidden inflation that occurs when a company charges a higher price for the same product. This could happen when a company believes that customers are willing to pay more for the same product, for example if the product has become more popular or the product is deemed to be of higher value.
To give an example, if a packet of potato chips originally sold for £2 but now is sold for £3 due to it becoming increasingly popular and in demand, then this would be an example of greedflation.
How Does Hidden Inflation Affect Consumers?
Studies have shown that hidden inflation can have an adverse effect on consumer behaviour. It can create feelings of mistrust and uncertainty as customers may feel that companies are taking advantage of them or that they are being misled. This can lead to people being less likely to purchase products, thus reducing overall demand.
Hidden inflation can also lead to reduced spending in the long run as people may be more mindful of the reduced value of goods and services in response to inflation.
Hidden inflation is an important concept for businesses and consumers to understand. Shrinkflation, skimpflation and greedflation are all forms of hidden inflation where products are reduced in quantity, quality or size but kept at the same price as previously, whilst products that have become increasingly popular may suffer from greedflation where the price is increased.
Overall, hidden inflation can have an effect on consumer behaviour as it creates feelings of mistrust, uncertainty and reduced spending in the long run. It’s important for companies to be transparent about the true value of their products and take measures to ensure greater value for their customers.
