Feb. 29, 2024 at 6:37 pm

Household products shrinking? Sen. Casey warns against ‘shrinkflation’

February 29, 2024no commentNo tags

Rising prices are a top concern among voters heading into the election, and many blame Biden for inflation.
Sen. Bob Casey, D-Pa., is introducing a bill to fight shrinkflation of household goods.
Critics and political opponents say Casey’s bill would go too far by telling companies how to package their products.

WASHINGTON – President Joe Biden looked decidedly peeved in his Super Bowl ad earlier this month.

“I’ve had enough of what they call shrinkflation,” he said during the commercial. “It’s a rip-off.”

Rising prices are a top concern among voters heading into the 2024 presidential election and many of them blame Biden for inflation. But with price increases slowing, some consumer advocates and lawmakers are joining the president and focusing their ire on a new target: shrinkflation. It’s the practice of reducing the size of consumer goods while charging the same price, fattening the manufacturer’s profits.

“Some companies are trying to pull a fast one by shrinking the products little by little and hoping you won’t notice,” Biden added. “… I’m calling on companies to put a stop to this.”

Sen. Bob Casey, D-Pa., introduced a bill Wednesday to fight shrinkflation of household consumer goods that American families routinely purchase like cereals, chips, detergents, cookies and toilet paper.

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The bill faces an uphill battle in Congress because of Republican opposition. But the proposal underscores that while inflation has eased since peaking in June 2022, Democratic lawmakers continue to blame big companies for intensifying price run-ups by excessively raising prices above their wholesale costs or providing less product, to pad their profits.

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Casey’s legislation, dubbed the Shrinkflation Prevention Act of 2024, gives the Federal Trade Commission and state attorneys general authority to crack down on companies that skimp on products but don’t cut prices to reflect it.

“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 told USA TODAY in a statement. “… I’m fighting to crack down on shrinkflation and hold corporations accountable for these deceptive practices.”

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Are products getting smaller?

The Bureau of Labor Statistics identified household paper products, snacks, coffee, tea and diapers as some of the top product groups most affected by shrinkflation.

For example, family-size packs of Double Stuf Oreos have dwindled 6% in size by weight, but maker Mondelez is charging the same price, according to an example from Casey’s December 2023 report on shrinkflation. Casey has examined how corporations profit off American families in a three-part series of reports last year.

Mondelez didn’t respond to an email seeking comment.

The report found that household paper products like toilet paper and paper towels are 34.9% more expensive per unit than in January 2019. Of that rise, the report found, 10.3% is because producers are shrinking the size of rolls and packages.

Casey also has criticized a broader concept, dubbed greedflation, which occurs when corporations raise prices faster than inflation to justify higher prices.

The Pennsylvania lawmaker sent a letter to the Government Accountability Office last month urging the office to examine the effects of corporate greed on consumers. Casey, who chairs the Senate Health, Education, Labor and Pensions Subcommittee, also co-introduced a bill earlier this month led by Sen. Elizabeth Warren, D-Mass., that would create a federal ban on excessive price increases or price gouging.

How does Casey’s bill fight shrinkflation?

Casey’s legislation gives the Federal Trade Commission the authority to crack down on corporations that reduce the size of products and charge the same price. The FTC already has the power to prohibit unfair or deceptive practices and the bill would establish shrinkflation as such conduct.

The FTC also could force companies to provide warnings on packages when they reduce the size or weight of a product but charge the same price, says Lindsey Owens, executive director of Groundwork Collaborative, a progressive economic policy research group. The group has endorsed Casey’s bill.

Consumers are often more aware of price changes than size changes, according to an article from the Bureau of Labor Statistics, which can contribute to corporations deceiving average consumers who aren’t able to compare product sizes.

The legislation also authorizes the FTC and state attorneys general to pursue civil actions against corporations that engage in shrinkflation.

Casey’s bill has seven Democratic cosponsors including Sens. Tammy Baldwin of Wisconsin, Elizabeth Warren of Massachusetts, Jacky Rosen of Nevada, Cory Booker of New Jersey, Sheldon Whitehouse of Rhode Island, Sherrod Brown of Ohio and Patty Murray of Washington as well Sen. Bernie Sanders, I-Vt.

Is shrinkflation ethical?

Critics and political opponents say Casey’s bill would go too far by telling companies how to package their products.

“Do you have any idea how communist in nature that would be?” asks Mike Faulkender, who served as assistant secretary for economic policy at the Treasury Department under former President Donald Trump.

Companies, he says, should be allowed to mitigate inflation’s effects by reducing container sizes instead of hiking prices. “Do you want the government to preclude that? he asks.

Owens, however, says the FTC has broad powers to curtail deceptive practices.

When did the inflation start?

In 2021 and 2022, companies sharply raised their prices to offset higher wholesale costs triggered by pandemic-related supply chain snarls and labor shortages. But while consumer prices increased 14% from July 2020 to July 2022, corporate profits soared 75% during that period, according to a report by Casey’s office that cites Commerce Department figures.

The net profit margins of S&P 500 companies peaked at 13% in the spring of 2022, according to FactSet, a research company. In earnings calls, some corporations have acknowledged that Americans flush with bigger pay increases and federal stimulus checks were willing to accept higher prices.

But since hitting a 40-year high of 9.1% in June 2022, annual inflation has come down to 3.1% in January, according to the consumer price index. And profit margins in the fourth quarter are running at 11.1%, based on the 80% of S&P 500 companies that have reported earnings so far, FactSet says. That’s the lowest since late 2020.

“Were (S&P 500 companies) able to pass along price increases and then some?” asks Ed Clissold, chief U.S. strategist for Ned Davis Research. “Yes. But they can’t anymore.”

Many companies have faced growing consumer resistance to price increases. In 2022, Unilever − which makes Ben & Jerry’s Ice Cream, Hellman’s mayonnaise and other household staples − jacked up its prices by 13.3% on average in 2022, according to The Associated Press. But its sales volume fell 3.6% that year. And so last year, the company lifted prices by just 2.8%. Sales, in turn, rose 1.8%.

Faced with such pushback to soaring prices, Owens says more companies are turning to shrinkflation. “When you can no longer charge more…you’re still looking to drive profits.”

As recently as the second and third quarters of last year, corporate profits accounted for 64.3% of inflation, according to a Groundwork report. And while some wholesale costs are now falling, companies aren’t passing along their savings to consumers by lowering prices, the report says.

For example, diaper prices have increased by more than 30% since 2019, the Groundwork report says, partly because prices for wood pulp − a big feedstock for diapers − jumped 87% in two years. Last year, though, wood pulp prices declined 25%, but manufacturers have held prices steady, widening their margins, rather than passing along the savings to consumers.

Procter & Gamble, a leading diaper maker, didn’t respond to an email seeking comment.

Faulkender, Trump’s former Treasury official and now a finance professor at the University of Maryland’s business school, says companies don’t set prices to cover costs, plus a profit margin, but rather to respond to the laws of supply and demand. In other words, if shoppers are willing to pay higher prices, companies can and should charge them. Otherwise, he says, there would be product shortages.

Oren Klachkin, a financial market economist at Nationwide, adds that strong corporate profits can be good for the economy. They mean “companies can invest and hire,” Klachkin says.

High profits also reflect strong productivity, or output per worker, allowing companies to increase pay without raising prices, he says. By some measures, average pay increases now top inflation and Americans have more purchasing power than they did before the pandemic, allowing many people to afford higher-priced products.

But Owens says that still doesn’t justify charging excessive prices. “Price gouging is a problem whether or not you can afford it,” she says.

How to combat shrinkflation?

With grocery prices up about 26% since late 2019, American consumers are looking for ways to save at the supermarket.

When it comes to combating shrinkflation, consumers can pay closer attention to net count or net weight on packages. Additionally, noticing changes in unit prices can reveal any changes in the quantity of a product.

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Household products shrinking? Sen. Casey warns against ‘shrinkflation’

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