What is Shrinkflation?

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What is Shrinkflation? Blog Image


As input prices, which were benign for a few quarters, turn inflationary, the spectre of shrinkflation looms large within the fast-moving consumer goods (FMCG) segment.

About Shrinkflation

  • It occurs when goods shrink in size but consumers pay the same price. It occurs when manufacturers downsize products to offset higher production costs but keep retail prices the same.
  • It is basically a form of hidden inflation.
  • Instead of increasing the price of a product, producers reduce the size of the product while maintaining the same price.
  • The absolute price of the product doesn’t go up, but the price per unit of weight or volume has increased.
  • Reasons: The reasons for shrinkflation are rising production costs and market competition.
  • Impacts:
    • These are products sold quickly and at a relatively low cost. The FMCG industry is characterized by high-volume sales, quick inventory turnover, and various products catering to consumer needs.
    • These goods include essential everyday items such as food and beverages, toiletries, cleaning supplies, and other low-cost household items.

Q1: What Is Inflation?

Inflation is a measure of how quickly prices are increasing over time. In other words, inflation measures how quickly money loses its purchasing power.

Source: Shrinkflation makes its way back into FMCG