Have you noticed your favorite chocolate bar feeling a little lighter lately? Or perhaps your preferred brand of biscuits lacks that familiar rich taste? You are not imagining things. As we navigate sticky inflation, firms are employing two fascinating pricing strategies to protect their profit margins: shrinkflation and skimpflation.

For advanced level economics students, these concepts offer a brilliant practical application of behavioral economics and price elasticity. When production costs rise, firms face a dilemma. Passing the cost directly to consumers through higher retail prices is risky because everyday goods often have a high price elasticity of demand. Consumers notice price hikes immediately.

Instead, firms use shrinkflation by reducing the physical size or weight of a product while keeping the sticker price exactly the same.

Behavioral economics tells us that consumers are highly sensitive to price changes but surprisingly blind to subtle reductions in volume. The firm successfully defends its margin, and the consumer unknowingly pays more per gram.

Then we have skimpflation, which is arguably even more insidious. Here, the price and the physical size remain constant, but the quality is downgraded. A food manufacturer might substitute premium ingredients like butter with cheaper vegetable oils, or an airline might quietly remove complimentary meals. The firm is skimping on the value provided to offset their own rising costs.

hese hidden price hikes create headaches for statisticians compiling the Consumer Prices Index. While the ONS can track the price per hundred grams to capture shrinkflation, quantifying a drop in customer service or a subtle recipe change is incredibly difficult.

Next time you are out shopping at the supermarket, look closely at the shelves. Economics is everywhere, hiding in plain sight within all of your daily choices.

Stay Happy, Stay Positive, Stay Curious.