Lawmakers want to penalize companies for 'shrinkflation' as consumers pay more for smaller packaging

By Venessa Wong

Consumer prices are a hot political issue as voters struggle with the rising cost of basic necessities

Prices aren't going up as fast as they once were, but one of inflation's frustrating side effects is still going strong: "shrinkflation." Senate Democrats have a proposal to tackle it.

Sen. Bob Casey, a Pennsylvania Democrat, introduced a bill Wednesday called the Shrinkflation Prevention Act of 2024. The legislation, which is co-sponsored by eight other senators, would direct the Federal Trade Commission to consider shrinkflation - as consumer advocates call the downsizing of products while prices remain the same or even go up - an unfair or deceptive act or practice and to prohibit manufacturers from engaging in it. The bill would also authorize the FTC and state attorneys general to pursue civil actions against corporations for shrinkflation.

"Corporations are trying to pull the wool over our eyes by shrinking their products without reducing their prices - anyone on a tight budget sees it every time they go to the grocery store," Casey said in a statement.

Social-media users have complained for months that groceries, takeout meals and other products are getting smaller, even as prices rise. Pizzas are now smaller than they once were, they say. Microwave meals are skimpier. Bottles of dish soap contain fewer ounces.

One consumer, who asked not to be named to protect his online identity, compared the size of Rice Krispies Treats he bought at two different times at the same Costco (COST) store in Salt Lake City and found that they were 1.3 ounces per bar in December and 0.78 ounces in February. "The box looked exactly the same," he said in a post on Reddit.

"There's like, three pieces of chicken in the butter chicken," a TikTok user said of her Trader Joe's microwave meal last month. "What the hell."

Grocery prices, already a hardship for many households, rose 1.2% in January over the same month last year, according to the latest consumer-price index. That's a relatively modest increase overall, but many of the products that saw the greatest pandemic-era shrinkflation continued to rise in price over the past year.

Inflation remains a hot political issue

Consumer prices have become a hot political issue ahead of the November elections. Republicans have ridiculed President Joe Biden's attacks on companies for raising prices and criticized him for what they call "Bidenflation," arguing that the president's economic policies are what have caused consumer prices to rise.

In a statement earlier this month, Biden said that amid slowing inflation, he is fighting to lower costs for middle-class families and "calling on corporations to pass savings on to consumers instead of hiding price increases by shrinking package sizes."

During a news conference at a National Association for Business Economics event in Washington, D.C., last week, Lael Brainard, the director of Biden's National Economic Council, said: "I think for the grocery stores and chains that raised their margins during the height of the pandemic, it's time to bring those down."

And Sen. Elizabeth Warren, the Massachusetts Democrat, also alleged this month that corporations were profiting from shrinkflation, saying corporate profits "are outrunning inflation by miles."

Once shrunk, products stay small

Edgar Dworsky, the founder and editor of the website Consumer World, has been tracking inflation for more than a decade. "Products virtually never go back to their original size and price," he said. "Often a product will get so small after repeated downsizings that the company brings back a larger size, but it is much more expensive. [A] one-pound bag of chips may get repeatedly downsized. Eventually, the company will bring back a large-size bag, maybe 15 or 16 ounces. They may give it a new name like 'party size,' but it will never be the same price as the original large one."

Companies are aware of consumer criticism of this perceived injustice, but some defend the practice. Hein Schumacher, the CEO of Unilever (UL) , which makes Ben & Jerry's and Magnum ice cream and Hellman's mayonnaise, this month said more downsizing may be coming, according to a report in the Telegraph. He also argued that it was important to offer "a smaller pack for consumers who are indeed more cash strapped, and who need a smaller size."

In 2021, ice-cream maker Tillamook explained its reduced carton size this way: "We learned that consumers' top two ice cream priorities are brand and price. Because of these learnings, we decided the option that would be least disruptive to our fans was to reduce our carton size and maintain the unit price."

MarketWatch reached out to a number of product manufacturers, including Rice Krispies maker Kellogg's (KLG) , for comment. They did not respond.

Data collectors and economists at the Bureau of Labor Statistics strive to capture product downsizing in a timely manner, according to a February 2023 article from the agency. But while downsizing affects individual items, "it has a miniscule [sic] impact on overall inflation," the agency said.

"While only a small number of prices in the [consumer-price index] experience downsizing each year, it does affect the indexes for specific item categories where such size reductions are common," the article said. "However, the impact of product downsizing at the all commodity and services level is minimal, with an average annual effect of 0.01 percent per year, so while consumers may notice shrinkflation at the grocery store, it has a very small impact [on] the overall inflation picture they face."

Consumers still feeling the 'stress' of inflation

The overall consumer-price index was up 3.1% year over year in January, compared with a 6.4% year-over-year jump in January 2023 and a 7.5% increase in January 2022.

Rising costs for shelter and food contributed the most to the increase last month, with the cost of shelter, including housing and hotels, up 6% in January over the last 12 months. Car insurance was up by more than 20%.

The good news for consumers is that the prices of some grocery staples have fallen, the most recent CPI data show. Egg prices were down 28.6% year over year, fish and seafood prices declined 2.6%, milk prices fell by 2.4%, rice prices were down 1.8% and pork prices fell by 0.4%. While prices for fruits and vegetables overall were up, the prices of certain products declined, such as apples, which were down 8.9%, and lettuce, down 11.7%.

Other areas of relief include energy prices, with the cost of gasoline down 6.4% and utility gas down 17.8%, and used-car prices, which were down 3.5%.

"The pace of inflation is slowing in the CPI number we saw, but people still feel the impact of higher prices, and that's an emotional and stressful thing," said Rob Williams, the head of financial planning at the Schwab Center for Financial Research. "Once you see inflation, it's not common for - and the Federal Reserve is very cautious about allowing - general consumer-price levels to fall."

Relief for consumers is more likely to come from greater increases in income, Williams said. The BLS data showed that inflation-adjusted average weekly earnings declined notably during the pandemic through mid-2022, when inflation peaked, but have been recovering gradually. The latest report shows that hourly earnings increased between January 2023 and January 2024, but a decrease in the average number of hours worked led to a 0.1% decrease in real earnings.

The latest inflation data was higher than analysts expect would be necessary for the Fed to cut interest rates. "The proverbial promised land, or target for an annualized inflation, for the Federal Reserve is 2%," Mark Hamrick, a senior economic analyst at Bankrate, said in a statement. While prices are rising more slowly, he added, the rate of inflation is "not close to where the Fed wants to be."

-Venessa Wong

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02-29-24 1254ET

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