‘Shrinkflation’ and other terms for inflationary times
Bloomberg Special
A prolonged period of elevated inflation has left consumers cranky and eager to cast blame. Higher prices for goods and services have proved more resilient than the US Federal Reserve and other central banks had predicted. That's encouraged theories and explanations that are shorthanded into buzzwords and phrases, including these.
Think of this as inflation in disguise. The premise is that the bag of coffee or box of cereal that we buy at the supermarket comes in smaller packaging, meaning there's less product, but the price remains the same — if not higher. In the UK, 76% of consumers noticed such shrinkage in September — chocolate was the most cited example — and 68% said supermarkets should have to label products that have gone down in size or weight, according to a survey by Barclays Plc. Shrinkage can also manifest in operating hours, the level of customer service and the quality of product offered for sale. The phenomenon gained renewed attention in March after the fictional Cookie Monster of Sesame Street fame complained on the X social platform that his cookies were getting smaller, drawing a sympathetic response from the White House, which wrote that C wasn't only for cookie, it also stood for "consumers getting ripped off."
Consumers compiling reasons to blame companies for their pain can also cite ...
Drip Pricing
The "drip, drip" nature of fees that get added late in the buying process — such as extra costs for luggage, seat choice and early boarding added to the price of an airline ticket — raised hackles long before inflation returned to front pages. But these add-on costs, "processing fees" and "service charges" have drawn renewed attention, particularly from elected leaders under pressure to show they are fighting for consumers. In June, UK Prime Minister Rishi Sunak said his government was examining "how widespread and how damaging" the practice is. Using the related term "junk fees," US President Joe Biden pledged in his January 2023 State of the Union address to fight "those hidden surcharges too many companies use to make you pay more," including airline surcharges on families that want to sit together, bank overdraft fees, credit card late fees, "surprise resort fees" charged by hotels, and fees to switch internet or mobile phone plans. His proposed legislative fix hasn't advanced in the US Congress, but his administration has pressured some companies to disclose fees upfront. It's also pressing for a new rule that would limit the size of credit card late fees.
Drip pricing feeds suspicions that companies raise prices just because they can, an idea shorthanded as ...
Greedflation
This contentious term captures the belief that some businesses use inflation as a cover to raise prices more than necessary and rip off their customers. It's a modern take on profiteering — "making an unreasonable profit on the sale of essential goods especially during times of emergency." How else to explain why prices for some goods and services remained elevated long after pandemic-era supply constraints were largely fixed? Not everybody is fond of the term. Capitalism "is supposed to be driven by greed," Bloomberg Opinion columnist John Authers wrote, and he said the real test is when greed rises to the level of exploitation. That companies raise prices in response to shortages "is not only defensible but desirable," the Economist magazine wrote. "The alternative to letting the price mechanism bring supply and demand into line is to rely on something worse, such as rationing or queues."
Sometimes, entire industries raise prices in response to an external event, and that can be thought of as ...
Excuseflation
The pandemic and Russia's invasion of Ukraine both had material impacts on the availability of goods and services. Worker shortages and disruptions to supply chains sent costs higher. One example: The cost of shipping goods in a container from Asia to the US, typically around $2,000, soared as much as 10 times higher. Executives say they needed to pass along their own increased costs to protect their margins. Skeptics see excuses at play. As a Chicago-area baker told Bloomberg's Odd Lots podcast late in 2022, global news events create opportunities to increase prices "without getting a whole bunch of complaining from the customers." In a much-cited March paper, Paul Donovan, chief global economist at UBS AG, said developed economies had entered a period "when some companies spin a story that convinces customers that price increases are 'fair,' when in fact they disguise profit margin expansion."
Donovan called that "profit-led inflation," which can also be conveyed as ...
Sellers' Inflation
This is the term used by Isabella Weber of the University of Massachusetts, Amherst, to distinguish this period of inflated prices. Large corporations with market power "have used supply problems as an opportunity to increase prices and scoop windfall profits," she wrote in December 2021. Profit margins of US companies were in the range of 10% to 12% in the five years prior to the pandemic and 14% to 17% since then, according to calculations by Bloomberg based on data from the Bureau of Economic Analysis. Rather than restore inventory to pre-pandemic levels, sellers chose "price over volume" as the path to higher revenue, wrote Weber, who urged consideration of price controls, an economic tool rarely used since World War II.
Where does all this leave the tapped-out consumer? Relief will come eventually, in the form of ...
Disinflation
This is when the pace of inflation is slowing (even if it remains elevated), like a car after the accelerator is released. While disinflation can occur during times of economic strength, as innovation and worker output bloom, usually it reflects a slowing economy. But disinflation, where prices are still rising, should not be confused with deflation, a general decline in prices that's a warning sign of a troubled economy.
And the truly faithful can look for signs of ...
Immaculate disinflation
One of the prime phrases of the moment, this captures the optimistic notion that the Fed, or any central bank, can bring prices under control without driving up unemployment. That's a challenge because higher interest rates — the leading tool to combat inflation — also can bring about an economic slowdown. True believers say the current cycle will defy that pattern because labor markets in many advanced economies remain tight, suggesting inflation can slow without the jobs market falling over.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
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