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Shrinking Packages

Feb 17, 2011 • Businesses, Demand, Supply, and Markets, Households, Macroeconomic Measurement • 130 Views    2 Comments

Have you noticed that the 64-ounce Tropicana Orange Juice container now holds 59 ounces of juice? Or, that Scott Toilet Tissue is 104.8 sq. ft. instead of 115.2 sq. ft.?

Other shrinking packages include…

The 24-slice package of Kraft American Cheese has 22 slices.

The 16 oz. Haagen-Dazs ice cream container has 14 oz.

At 24 oz., Ivory Dish Detergent is now 6 oz. smaller.

The 12 oz. package of Hebrew National Franks has become 11 oz.

According to Consumer Reports, many everyday goods are getting smaller. When cotton, wheat, oil, sugar, oilseeds (e.g. soybeans and sesame seeds) and other commodities become more expensive, then suppliers have decisions. Absorb higher production costs? Increase prices? Shrink product size? Many have chosen to preserve profit margins by downsizing.

The Economic Lesson

According to the Bureau of Economic Analysis (BEA), the Consumer Price Index (CPI) recalibrates when package size changes. They explain it here. However, I do wonder whether the CPI adequately reflects the inflationary implications of smaller packages.

The December-to-December, 2009-2010 inflation rate is 1.5%.

 

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  • Emily Hilton

    Maintaining price while reducing the size of a package is fundamentally the same as maintaining the size of the package and raising the price. Consumers still have less purchasing power because they receive less for their money. The CPI is recalibrated because the 16 oz container of ice cream is considered a different item from an identical container that is 2 oz smaller. With this method, CPI is ignoring inflation. Dr. Bernanke should look past the numbers the CPI gives and instead realize that inflation is not as ideal as it may seem. Dr. Bernanke could target inflation by selling securities or raising the discount rate. However, although the CPI is flawed, I think the more urgent issue at the moment is unemployment, not inflation.

  • korberm11

    This relates to monetary policy because it shows signs of pending inflation. Although this situation does not sound like the Brazil “price-sticker” frenzy, it seems like a step in that direction. If companies offer less and less product at the same price, inflation will inevitably occur. Head of the Fed Bernanke might try to control such inflation by employing contractionary policy, or by shifting the money supply curve to the left by selling securities or raising the discount rate.

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