It must have been about 20 years ago already that I learned the word “shrinkflation” during my studies at NHH in Bergen. The word is made up of the two words “shrink” and “inflation”, and essentially means mastering the art of delivering less – at the same price. The phenomenon is not so easy to spot for the regular consumer, if you are not extremely concerned about price. The fact that the carton, package or bag in which various foodstuffs are packed suddenly becomes smaller while the price is maintained, can easily fly past a busy everyday life. And the shops know how to exploit that. 18 eggs became 12 news wrote on Friday about how Kiwi first raised the price of the egg carton with 18 eggs. Then the package shrunk to 12 eggs. Within a few months, the price of one egg became 74 percent more expensive. Among other things, Kiwi explains that they have sold the eggs at an artificially low price over a long period, and that it was not sustainable to sell at a loss over time (read Kiwi’s full response in the matter here). Economics professor Tor Wallin Andreassen at the Norwegian School of Economics is not impressed, and believes the aim is to make more money on the goods sold, without informing the customers that the goods have in practice become more expensive. Pretty sneaky, really. Seizing the opportunity And while we’re on the subject of stealth, it’s not uncommon for another well-known phenomenon to occur. When people, the media and politicians shout loudly that prices are rising, yes, it is easier for many retailers to take the opportunity to add a little extra. It is also almost completely impossible for people to discover, because everything goes up so insanely much in price anyway. We saw a good example earlier this week. In one year, the prices of food have risen by more than 12 per cent. Agricultural researcher Ivar Pettersen at ALO Analysis told news on Monday that prices are increasing at all stages, but that they are surprised that prices are increasing more towards the consumer than at the primary stage and the wholesale stage. He says it is abnormal. What Pettersen is saying, in other words, is that the shops are increasing the prices more now than in the past. Virke, for his part, refutes that – and says that the grocery chains have very low profits and that the price increases are about increased costs. Golden opportunity Nevertheless, the figures show that the shops are jumping on, without reason, because they see a golden opportunity. It may also happen that other companies raise their prices a little more than they “should” when they first have the opportunity, and there is a climate for raising prices. When everyone expects high price growth, it is easier to raise prices. When that happens, it becomes difficult to bring inflation down: expectations of high inflation lead to high inflation. Raised car prices The New York Times pointed out at the end of September that many companies have been able to raise prices more than they have had in cost increases in the last two years. This has improved profitability, but has also contributed to pushing inflation higher. This applies especially in the car market. The car dealers have paid more for the cars they buy in, but they charge even more for the cars they sell. They have been able to do that because a lot of people have wanted to buy cars, and there simply haven’t been enough available cars to buy. Creates challenges Price rigging and larger mark-ups than necessary create more problems. Firstly, shrink inflation is not captured in the consumer price index. This means that the figures we have for price growth are now artificially low, if many manufacturers choose to do the same. Then, for example, the decision-making basis for the interest rate setting will be imprecise at best, and wrong at worst. Secondly, the additional price increases will contribute to even higher price growth. In order to manage to reduce price inflation, the expectation of price inflation must also decrease. It seems difficult to achieve when those who sell the goods save themselves by setting up a little extra. The shops’ opportunism may seem innocent, but in the worst case can lead to the central bank having to set the key interest rate even higher – in order to finally break the strong rise in prices.
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It’s pretty sneaky, really – Utterance
