Think Inflation is Dropping? How Companies Fool You

Watch out for deceptive pricing practices

Ric Edelman: It's Wednesday, August 2nd. Yesterday I lamented that we have been unable to come up with a new better name for crypto than, well, crypto. You know, we're always adding new words to the language. Inflation this past couple of years has gotten us shrinkflation and I talked about this with you several months ago. Instead of a company raising prices on their products, they shrunk the products Shrinkflation.

Instead of paying more, you get less. Hundreds of examples are available about this from every manufacturer, and they're all doing this shrinking the quality or quantity of their products rather than raising their prices: Hellofresh. Big Mac. Crayola Crayons. Gatorade. Campbell Soup. Colgate Toothpaste. Twix. Jack in the Box. Oreos. They've all not just reduced the number of items you get. They've reduced the size of each item.

In other words, you not only get fewer cookies, the cookies themselves are smaller or they have fewer chocolate chips or almonds or less filling or whatever. For example, a bar of Dove soap was four ounces. Now it's 3.17oz. That's 21% less. Inflation has not risen 21%. Angel Soft toilet paper, six pack. It used to have 429 sheets per roll. Now it's 320 sheets per roll, 25% less. Arm & Hammer Detergent. It was a box of 75oz. That box now holds 67oz, 10% less. That's shrinkflation.

And now there's another word, a new twist on how companies are handling inflation. The exact opposite of shrinkflation. They're like I said, the idea is to avoid a price increase. They simply deliver less. Now, though, they are increasing the price massively, far more than the rate of inflation. 

And how are they getting away with it? By something that is now being called premiumization. So go ahead, make the cookies 10% bigger or put in 10% more chocolate chips or put more cookies into the box and then charge 30% more instead of just 10% WD 40, they added a new smart straw that sprays the lubricant either in a stream or a mist, and they raised the price of the product, even though the product itself is unchanged. In some cases, you just raise prices without doing anything new. You sell less product, but you make more money on the products you do sell.

Look at cars. In 2017, 13% of sales were for cars below $25,000. Now they're only 4% of sales. Well, this premiumization is fine for wealthy people. You get more for your money, but it shuts out low income people who can't afford the higher prices. In 2017, there were 36 different car models available under $25,000. Today, there are only ten. Automakers are focusing on people who can afford more expensive cars. They're starting to ignore people who can only buy low cost cars. Shrinkflation You get less for your money when you buy premiumization. You get more for your money, but you have to spend a lot more of your money in order to buy anything.

All of this, it's manipulation. The incentive for companies to do this is because of inflation. And even though inflation is dropping, Shrinkflation and premiumization are going to stay with us a lot longer, probably forever.

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