SHRINKFLATION (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     16th April 2024        

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


  • About: It occurs when goods decrease in size while maintaining the same price, effectively reducing the value consumers receive.
  • Hidden Inflation: It's a form of concealed inflation where producers opt to shrink product sizes rather than directly increasing prices.
  • Price Dynamics: Although the absolute price remains constant, the price per unit of weight or volume rises due to the reduced size of the product.
  • Reasons Behind Shrinkflation: Rising production costs and market competition are the primary drivers of shrinkflation.
  • Higher Production Costs: Increased costs of ingredients, raw materials, energy, and labor prompt manufacturers to downsize products to maintain profit margins.
  • Causes of Shrinkflation:

oIncreased Costs: Higher expenses in production lead to companies reducing product sizes to maintain profitability.

oIntense Market Competition: Pressure to keep prices competitive drives companies to shrink product sizes rather than increase prices.

oChanging Customer Demands: Evolving preferences may prompt companies to alter product formulations, resulting in size adjustments to meet demand.

  • Impacts of Shrinkflation:

o Shrinkflation risks alienating customers who perceive they're receiving less for the same price.

o It complicates measuring price changes and inflation accurately, as product sizes may vary without reflecting in the price point.