America is not a country of reducing inflation

“Too many corporations have raised prices to increase their profits, charging more and more for less and less,” Biden complained in his State of the Union address this year. “In fact, snack companies think you won’t notice if they change the bag size and put a lot fewer bags of the same size in it and put fewer chips in it. No, I’m not kidding. This is called shrink inflation. Pass (Sen.) Bobby Casey’s (D-Pa.) bill and stop this. (Laughter and applause.) I really mean this!”

Biden added: “You’ve probably all seen the Snickers bar commercials. You’re charged the same amount, but you have, I don’t know, 10% less Snickers.

The president’s discussion of “shrinkflation” was sandwiched between his administration’s Social Security plans and the war on so-called junk taxes. Both were top priorities of his now hobbled administration, an indication of how much Biden either hated cutting inflation or believed the issue would resonate with voters.

Snack food corporations have used a variety of tactics in response to the president’s allegations. Snickers maker Mars largely simply denied that this was true.

“We have not reduced the size of Snickers singles or the size of shares in the United States,” a company spokesperson said in a statement to Republican CNN commentator Scott Jennings. “Like many industries, we continue to face high inflation and material cost hikes; however, we work to cover these additional costs where possible to ensure accessible treats at the best price. Final pricing is always at the discretion of the retailer, but we work hard to minimize costs to ensure we provide a full range of delicious products.”

However, Biden cited data from chips and other consumer food suppliers with such criticism. Hence the cheers from the cheap seats in Congress. He called on both chambers to pass a bill called the Shrinkflation Prevention Act, which would “direct the Federal Trade Commission to issue regulations making shrinkflation an unfair or deceptive act or practice,” according to the bill’s official description.

Pandemic prices or “greedy inflation”?

The author of the bill abandoned it at the end of February and tried to pass it urgently. “You can’t wait a year to buy paper towels, or buy boneless chicken, or buy groceries, or buy Huggies diapers,” Casey said. That New York Times.

Casey is up for re-election this year in a close race against veteran wealthy former wealth manager and George W. Bush administration alumnus Dave McCormick. The Pennsylvania senator has invested heavily in the problem of inflation, or “greedy inflation” as he calls it.

As chairman of the Senate Health Subcommittee on Children and Families, Casey published four reports on prices and earnings. The third report, “The Greedflation Report – Shrinkflation: How Corporations Shrink Products to Excessive Profits,” is the most relevant.

Casey’s Shrinkflation report claims that between July 2020 and July 2022, “Federal Reserve research shows that 41 percent of inflation during that time was driven solely by increases in corporate profits.”

Returning to the president’s favorite example: “Frito-Lay reduced the bag size of Doritos from 9.75 ounces to 9.25 ounces,” the report said. “Frito-Lay blamed the pandemic, but Frito-Lay North America’s operating profit rose 9 percent from 2021 to 2022 while Frito-Lay’s parent company, PepsiCo, touted the snack maker’s performance. “Doritos prices rose as volumes fell, and PepsiCo’s earnings beat expectations.”

Both bags are labeled with their volumes, allowing interested buyers to notice the reduction. However, Casey considers this one of many examples of “greed” and deceptive marketing that he would like to stop.

Do you want this size?

However, the reason for the decline in sales of major brands is likely due to what economists call the substitution effect. According to the Institute of Corporate Finance, it is so called because of “a change in the demand for a good resulting from a change in the relative price of that good relative to other substitute goods.”

The example given by the CFI is that “when the price of a good rises, it becomes more expensive relative to other goods in the market. As a result, consumers switch from the product to its substitutes.” In other words, rising prices serve as a price signal telling buyers to look elsewhere.

At least initially, during the excruciating supply chain disruptions caused by COVID-19, big brands thought they were offering almost as much product for the same price, and thought that was a good thing. Casey’s report quotes one unnamed Frito-Lay representative as explaining, “We just took some out of the bag to give you the same price and you can keep your chips.”

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Most snack food companies have been candid about what they did and why they did it, but it has not been well received by consumers and congressional watchdogs. There has been such a noticeable reaction among consumers that many brands are now changing course, such as increasing the size of snack bags. In October, Tostitos and Ruffles announced they would soon add about 20% more chips in so-called “bonus packages” for the same price.

Despite the president’s public lobbying, passage of the Shrinkflation Prevention Act stalled in Congress. It was read twice in the Senate and led to several hearings. The last meeting before the Senate Economic Policy Subcommittee on Banking, Housing and Urban Affairs took place in late March. Perhaps the additional crisis ahead can provide some consolation.

Jeremy Lott – author Warm Bucket Brigade: The Story of an American Vice President.