The Mystery of the Shrinking Pretzel Packages
Management at paper products firms seem to be inflation savvy. Decreasing sizes but not prices, they’re selling smaller rolls of towels and toilet paper. Procter & Gamble reduced its Super Mega rolls from 396 to 366 double-ply sheets and its Mega rolls went down from 264 to 244. Meanwhile, Costco-Kirkland toilet paper shrunk to 380 sheets from 425. That means their 30-roll package lost 10%–the equivalent of 3 rolls. Elsewhere too, for items ranging from cat food to Cheerios and sardines, sizes are shrinking but not prices.
There’s less Charmin to squeeze:
Showing that shrinkflation (like inflation) hits each of us differently, as a pretzel lover, the Snyder’s reduction particularly will affect me:
Do you see the different Gatorade bottles? At 28 ounces rather than 32, the new one had to curve inward:
Here though, we arrive at a bit of a mystery. A new study tells us that a surprisingly large proportion of CEOs appear to know shockingly little about inflation.
Let’s take a look.
What CEOs Know About Inflation
Three economists have been using survey information since 2018 to determine what CEOs know about inflation. Based on survey answers, they concluded that relatively few knew the inflation rate or the Fed’s inflation target. Asked about the inflation rate last year, fewer than 20 percent answered accurately. Similarly, 65 percent said they didn’t know or didn’t answer when asked the Fed’s inflation target.
More precisely, below, you can see what CEOs expected since 2018. Too high and too low, their predictions failed to predict the inflation lows of 2018 and 2019:
Our Bottom Line: Inflation Expectations
Yes, many of us–even the Fed–inaccurately predicted future inflation. However, these researchers point out the CEOs they surveyed were uninformed and therefore basing decisions on the wrong information or none.
The Fed’s monetary policy makers need knowledgeable CEO information when they form interest rate policy. Although it becomes a problem when CEOs know and care little about inflation, still the Fed wants to know what firms feel.
Shown below, as recently as January, CEOs based policies on inaccurate expectations:
But many CEOs certainly knew enough to shrink their packaging.
My sources and more: CNN and the NY Post reminded me it was time to return to shrinkflation. However, having looked at it twice during the past year, I needed the new perspective provided by this NBER paper and also some CPI history. And finally, if you look at just one link, do go to the website that monitors shrinkflation for us.
Originally published at https://econlife.com on March 9, 2022.