Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / The Unsung Inflation Hedge in Your Grocery Bill
Transcript
- Lucas: You ever open a can of Pringles and feel like you're pulling out more air than chips? You're not imagining it. Since 2021, the standard Pringles can has gone from 7.8 ounces to 6.4 ounces — that's a 17 percent shrink. And the price? It's actually gone up about 8 percent. Luna: So we're paying more for less product. That's shrinkflation, and it's been all over social media. But here's what I'm curious about — how does the official CPI handle that? Lucas: That's the key question. The Bureau of Labor Statistics tries to adjust for quality and quantity changes. If a can of Pringles gets smaller, they'll note that the net weight dropped, and they'll calculate the price per ounce. In theory, CPI should capture that. But in practice, there's a lag — and sometimes they miss it entirely. Luna: How much of a miss are we talking? Because the April CPI came in at 332.4, up from 330.3 in March. That's about 2.3 percent annualized, roughly. But if shrinkflation is undercounted, maybe the real number is higher. Lucas: Exactly. A study from the Bureau itself a few years ago estimated that failing to fully account for downsizing could understate inflation by about 0.5 to 1 percentage point per year for specific categories. And when you layer in 'skimpflation' — that's when the ingredients get cheaper, like replacing real cheese with oil blends — the gap widens. Luna: I've seen that with my own grocery brand. A jar of Folgers coffee used to be 12 ounces a few years ago. Now it's 11.3 ounces. Same price. Same red plastic lid. But you notice when you're scooping it. Lucas: The ten-year breakeven inflation rate — that's the bond market's expectation of average inflation over the next decade — is sitting at 2.39 percent. That's fairly anchored. But if you're a household that buys a lot of packaged goods, you might be experiencing inflation closer to 3 or even 4 percent, thanks to these hidden reductions. Luna: And that matters for your long-term purchasing power. If the official number says 2.4 but your personal basket is inflating at 3.5, your savings are eroding faster than you think. Lucas: Right. And here's where it gets interesting from an investing perspective. Some hedge funds have started to trade around these measurement gaps. They'll buy companies that are particularly good at shrinkflation — think consumer staples with pricing power — because those companies can maintain margins without obvious price hikes. And they'll short companies that are stuck with fixed package sizes, like commodity producers. Luna: So the market is essentially betting on whether the BLS will catch up. That feels like a weird angle on inflation hedging. Lucas: It is. But it also points to a broader truth: inflation isn't a single number. The CPI is a weighted average of thousands of items, but your personal experience depends on what you buy. If you're a renter in a city with rising rents, your rent component — which has been sticky — hits you harder. And if you buy a lot of processed foods, shrinkflation is sapping your wallet. Luna: Let's get practical then. What can someone actually do about this? Lucas: First, track your own personal inflation rate. You can do it roughly by keeping a simple spreadsheet of your top twenty recurring purchases — the stuff you buy every month. Then see how the price per unit has changed over the past year. If it's rising faster than CPI, you need to adjust your savings targets. Luna: Set a higher nominal return goal for your investments? Maybe look at TIPS or I Bonds again? Lucas: Exactly. TIPS, Series I savings bonds — those are explicitly tied to CPI. But if your personal inflation is higher, even those may not fully protect you. You might need to tilt your portfolio toward assets that have historically outpaced inflation: equities, real estate, maybe commodities in moderation. Luna: And on the spending side, you can switch to bulk items or store brands that are less subject to shrinkflation. A big bag of generic coffee might stay the same size longer than a branded can. Lucas: Right. And that's the kind of conversation we try to have here — grounded in real numbers, real products, real strategies. We don't run ads on this show, and we keep it focused on helping you protect your purchasing power. If that's valuable to you, you can support the show at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this ad-free. Luna: Yeah, and we genuinely mean that. The link is simple: buy me a coffee dot com slash fexingo. All lowercase. Lucas: So back to the Pringles can. The takeaway isn't that you should stop buying chips. It's that you should be aware of the game. Every time you see a new package size, ask yourself: what's the per-unit price? And compare it to a year ago. Luna: And if you're investing, pay attention to which companies are quietly downsizing. Those are the ones that might be beating earnings estimates even as volumes decline. Lucas: Exactly. And on that note, let's look at a specific example. Kellanova — the company that spun off from Kellogg — they've been very active with shrinkflation. Their Pringles cans, their Rice Krispies Treats bars, they've all gotten smaller over the past five years. And their operating margins have actually expanded. Luna: But is that sustainable? At some point, consumers notice and switch to private label. Costco's Kirkland brand, for instance, has held package sizes steady for years. Lucas: That's the risk. The shrinkflation playbook works until people catch on. But for now, it's a significant factor in CPI measurement. The BLS does adjust for weight changes, but there's a lag of months, sometimes years, before they update the 'market basket.' Luna: So the official CPI could be artificially low for a while, then jump when they revise. That creates a headache for anyone trying to forecast inflation. Lucas: It does. And that's why the breakeven rate — the 2.39 percent we mentioned — might be slightly understated. The bond market is pricing in official CPI, not your personal grocery bill. Luna: So if you're an investor, you might want to add a cushion. Maybe target a 3 or 4 percent real return instead of 2 percent. Lucas: That's a reasonable take. Another angle: look at companies that provide 'inflation-proof' services — think subscription models where the price is fixed for a year, like Netflix or Spotify. Those effectively cap your cost for that category, even if overall inflation rises. Luna: But those have been raising prices too. Netflix is up what, 15 percent in the last two years? Lucas: True, but the increase is transparent and infrequent. Shrinkflation is the opposite — it's a stealth tax. And that's why we're talking about it. If you know it's happening, you can factor it into your budget and your investment strategy. Luna: Alright, let's wrap with a concrete action step. Listeners: this week, when you go grocery shopping, pick three items you buy regularly. Check the net weight on the package. Compare it to a photo from a year ago if you have it — or just estimate. See if the per-unit price has risen faster than CPI. That's your personal inflation rate. Lucas: And if you find a big gap, consider adjusting your emergency fund target. If you're saving for six months of expenses but your personal inflation is 3.5 percent, you might need seven months to feel safe. Luna: That's the kind of specific advice we're here for. Thanks for listening, and we'll catch you next time on Inflation and Your Money with Fexingo.