Inflation May Be Lurking as Food Portions Shrink, Echoing 1970s

Wednesday, 03 Sep 2014 03:57 PM

 

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Inflation may be lurking in the aisles of supermarkets.

Even with price pressures tame to non-existent in the industrial world, economist Pippa Malmgren says they’re there if you look.

A former adviser to President George W. Bush, Malmgren is zeroing in on what’s come to be known as “shrinkflation,” where companies charge consumers the same, or more, for less. That may foreshadow an overall jump in prices, an alarm she’s been sounding for a while.

“Shrinking the size of goods is exactly what happened in the 1970s just before inflation proper set in,” she writes in her new book, “Signals: The Breakdown of the Social Contract and the Rise of Geopolitics.”

It also explains why people are so agitated by a higher cost of living, writes Malmgren, who founded London-based DRPM Group, a consulting firm.

Take the Dairy Milk bar produced by Mondelez International Inc.’s Cadbury unit. In 2011, the company lopped two squares of chocolate from the snack, holding the price unchanged. At the time, the company cited rising costs. Last year, it made the corners of the bar more rounded, reducing the weight.

The U.K. consumer group Which? turned up other examples in a study it conducted last year. It found boxes of Nestle SA’s Shredded Wheat cereal had shrunk to 470 grams from 525 grams yet still cost 2.68 pounds ($4.45).

Russian Beer

Just last month, Carlsberg A/S, the world’s fourth-largest brewer, said it’s putting less beer in some bottles in its Russian market and making others smaller there in what it called a bid to avoid raising prices.

Companies typically blame the moves on the rising cost of commodities and other ingredients.

“We always aim to offer our consumers great value for money for the brands they love,” Nestle spokesman Len Bennett said in an e-mail. “Occasionally we make changes to the size of our products, driven by a number of factors, including anything from a product reformulation, a change in packaging, or changes to ingredients costs. Resale price is at the sole discretion of the retailer.”

Malmgren is more worried. “There are signals that prices are starting to rise, or that inflation pressures are building,” she writes.

© Copyright 2014 Bloomberg News. All rights reserved.

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