Inflationary Realities, Shrinkflation Strategies: Business Unveiled

Abstract

Since the onset of the pandemic in March 2020, global supply chains have been severely impacted. Preceding this, the intense protectionism and trade tensions between the USA and China in 2018 and 2019 had already diminished trade volumes on the Western front. The invasion of Ukraine by Russia in February 2022 further disrupted supply chains, creating a ripple effect that shook economic stability. This tumultuous series of events triggered a worldwide wave of inflation, resulting in an increase in the prices of goods and services across various categories. The inflationary surge had a profound impact on family budgets, adversely affecting the standard of living for many. To combat this, the majority of central banks responded by raising interest rates, causing a sharp increase in the cost of borrowing. Faced with these challenges, producers from large, medium, and small enterprises found themselves compelled to make their products more affordable, aiming to alleviate the financial strain on consumers. In the era of consumerism, producers found themselves under pressure to provide relief to end-users. The adopted strategy involved reducing the size or weight of products while maintaining the same price. This tactic, known as shrinkflation, became a psychological game to offset the inconveniences of inflation. Consumers, although paying the same price, received less for their money. While some organizations embraced this strategy, others considered it a serious ethical breach. Some consumers accepted the reduction without complaint, while others, particularly those with conservative views, felt aggrieved by what they perceived as a moral compromise. For some producers, shrinkflation was seen as a temporary measure, applied until input prices softened.