Inflation is a major topic of interest when new monthly inflation figures and inflation rates are released. Inflation represents a general and sustained increase in the prices of goods and services in an economy, reducing the purchasing power of the currency. One of the most well-known indicators of inflation is the Consumer Price Index (CPI), which measures the average changes over time in the prices paid by urban consumers for a basket of goods and services. Inflation affects the decisions of consumers and businesses, significantly impacting personal budgets and spending choices. Inflation negatively influences consumers’ purchasing power, leading them to buy fewer goods and services or opt for cheaper alternatives. At the same time, businesses face rising production costs and may be tempted to raise prices, leading to what is called cost-push inflation. However, businesses must be cautious, as price hikes can result in decreased sales. Nonetheless, some entrepreneurs have imagined new ways to break free from this apparent vicious circle, though these paths are nothing more than seemingly different faces of the same phenomenon, inflation.
The phenomenon of „shrinkflation,” characterized by the subtle reduction in the weight or quantity of products to increase prices, is also present in Romania. An investigation conducted by Libertatea in various supermarket and hypermarket chains revealed that manufacturers and retailers incorporate this tactic without disclosing the changes. The National Authority for Consumer Protection (ANPC) argues that this practice does not violate the law as long as labeling rules are adhered to and the actual weight is marked on the packaging. In fact, this practice is not legally incriminated anywhere in the world, although in economic circles, the debate about its ethical implications gathers supporters on both sides of the argument. „Shrinkflation” is a widely used strategy in the food industry and beyond, where producers and retailers reduce the quantity or weight of products without properly adjusting prices, causing consumers to pay the same amount for less product. This subtle practice can significantly impact consumers’ cost of living. In countries like France, governments have implemented measures to require manufacturers to label products that have undergone „shrinkflation,” so consumers are informed about changes in size or weight. However, in Romania, these measures are not in place, leaving consumers largely dependent on their own vigilance regarding labeling and prices.
In Romania, government policies, including the well-known price cap ordinance, are crafted by officials who often lack vision and are embraced as saving solutions by politicians who lack minimal intellectual preparation or professional experience. For this reason, phenomena such as „shrinkflation” remain the only survival path for food producers against the onslaught of regulations imposed by those who either do not accept or do not understand the market. The notion that a 20% price increase in production costs could cover all the actual expenses of a company in the milling and baking industry is devoid of any economic foundation, indicating a profound ignorance and lack of market knowledge.
In addition to „shrinkflation,” discussed by Libertatea, there is also „skimpflation,” a strategy in which businesses cut back on the quality of products or services, aiming to offer less for the same amount of money. These changes may include reduced services or lower product quality but are usually difficult for consumers to detect. An example of skimpflation can be observed in stores where customers scan their products themselves and pay before leaving. Contrary to the impression that this phenomenon is inherent to technological evolution, it is actually the ancestor of an event that occurred over a century ago (in 1916) when the first self-service supermarket emerged. Back then, the owners of the Piggly Wiggly store in Memphis, Tennessee, offered customers baskets to purchase products themselves from the shelves, eliminating the employees who did this. The next level in this trend, initiated more than a century ago, is for stores to no longer even have security staff, practically transforming into spaces where you enter, serve yourself, and pay without interacting with costly and irksome labor.
Skimpflation can also be seen in the services offered by hotels, where rooms are no longer cleaned every day but at intervals of several days, where the traditional breakfast buffet has been replaced with pre-packaged items or pastries. Companies can easily resort to lower-quality ingredients or even do away with certain ingredients altogether. Consumers may not realize this unless they accidentally encounter an older product and compare the two labels. In the case of food products, where consumers have sensory-based memories, these things are easier to detect. However, in the case of products like clothing, where the reduction in quality can be imperceptible, or defects that occur can be attributed to factors other than those responsible, consumers may be unaware.
In an article published in August, Barak Orbach, an academic economist from the United States, argues that „shrinkflation” should be judged from the perspective of the competitive environment in the market and consumers’ real expectations. He gives the example of the chocolate market in the U.S., dominated by Hershey and Mars. Although these companies are dominant, neither Hershey nor Mars hold a monopoly in any market subsegment. They compete interdependently, constantly monitoring each other’s actions. Whenever one company considers adjusting prices or packaging, they take into account the likely reactions of the other. As a result, parallel price increases are not necessarily an indicator of illegal price-fixing. During the pandemic, when production costs increased significantly, both companies resorted to direct price increases and reduced product sizes. They defended these tactics by arguing that „inflation rates caused the increase in production costs and the prices of ingredients such as sugar, flour, and milk,” and that „the cost of each of these items” exceeded the overall consumer inflation rate in the United States.
What is the impact of reducing sizes on the well-being of chocolate consumers? The answer depends on relevant circumstances. For example, suppose the marginal cost of chocolate increases by 10%. An increase in prices of this magnitude will likely influence consumer purchasing choices. However, a 10% reduction in the quantity of chocolate in packaging can go almost unnoticed and may not bother sweet-toothed consumers. In fact, parents might even appreciate a reduction in the quantity of chocolate their children consume.
In the fragmented Romanian bread and bakery market, where every competitor watches the other closely, price increases are risky. In reality, such markets favor large producers who can strategically diversify suppliers (based on arguments regarding quantities purchased and logistic advantages) and leave small producers at the mercy of the market. In this context, resizing products or the quality of ingredients is the only concrete option available to small producers to try to maintain competitiveness. In this picture, the government policies that the Ciolacu Government stubbornly promotes are as suitable as a square peg in a round hole. Capping selling prices only worsens consumers’ prospects, as they not only pay more for the same product but also buy less and lower quality.
