Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Shrinkflation Is Alive and Well in 2026
Transcript
- Lucas: So you go to the store, grab a bag of chips you've been buying for years, and something feels off. The bag looks the same, but you're not sure. Then you flip it over — 9.75 ounces instead of 10.5. Same price. Luna: Classic shrinkflation. And it's not just chips. Cereal, paper towels, even ice cream — they've all been shrinking for years. Lucas: Right. But here's the thing — we're now in July 2026. Headline CPI inflation is running around 2.4 percent. The Fed's been holding rates steady at 3.63 percent since June. By that measure, things are calming down. Luna: Yet the experience at the checkout counter doesn't feel calm. If anything, it feels like you're getting less for more. Lucas: Exactly. And that's because CPI doesn't catch shrinkflation well. The Bureau of Labor Statistics tries to adjust for quality changes, but a smaller bag of chips? That's a pure quantity reduction. It's inflation hiding in plain sight. Luna: There was a consumer watchdog report out last month — the Consumer Federation of America, I think — that found 12 percent of supermarket products had downsized in the past year while prices stayed flat or even rose. Lucas: Twelve percent. That means roughly one in eight items on the shelf is smaller than it was a year ago. And the companies doing it are banking on you not noticing. Or noticing but feeling too busy to do anything about it. Luna: It's a behavioral economics play. A $4.49 bag that's 10 percent smaller feels less painful than a $4.99 bag that's the same size. The pain of a higher price is more immediate. Lucas: So companies choose the stealth route. And it's not just consumer goods — think about your streaming subscription. Same monthly price, but now there are ads, or you lost 4K, or the content library shrunk. Luna: Service shrinkflation. You're paying the same for less. That's the version we see in software and media. Lucas: Let's tie this to the broader economy. Last week's jobs report showed only 57,000 new payrolls in June, and the unemployment rate ticked up to 4.2 percent. The labor force participation rate dropped to its lowest in 50 years outside the pandemic. Luna: So people are leaving the labor force, and those who are working may not be seeing wage gains that keep up with real inflation — the kind that includes shrinkflation. Lucas: Wage growth has been slowing. Average hourly earnings are up maybe 3.8 percent year-over-year. But if your grocery bill is going up 2 percent in CPI terms, but you're actually getting 12 percent less volume in some categories, your effective cost is higher. Luna: That's the inflation gap we keep talking about on this show. CPI says one thing, your wallet says another. Lucas: And this gap matters for policy. The Fed looks at core PCE, which was 130.1 in May, up just a bit from 129.67. That's within their target range. But if they're missing the shrinkflation effect, are they really hitting their inflation goal? Luna: Probably not. But it's hard to measure. How do you adjust CPI for a smaller candy bar? The BLS does try — they use hedonic regression for things like electronics, but for groceries? It's tough. Lucas: So we're left with a disconnect. The official numbers look good, but households feel squeezed. And that feeling feeds into consumer sentiment, which has been negative for months. Luna: The University of Michigan consumer sentiment index has been hovering near recession levels, even though GDP is still growing. Shrinkflation is part of that psychological toll. Lucas: Let's bring it to a concrete example. Take a brand like Doritos. A standard family-size bag used to be 14.5 ounces. Then it went to 13.5. Now some stores carry 12-ounce bags at the same price. That's a 17 percent reduction in weight over a few years. Luna: And that's a product where the ingredient costs — corn, oil, seasoning — have probably gone up maybe 10 percent total. So the shrinkflation is more than covering their cost increases. Lucas: It's margin protection. Companies are using shrinkflation to preserve profitability without scaring off customers with higher sticker prices. And it works — until enough people notice and switch brands. Luna: But switching brands is harder than it sounds. If every cereal brand has shrunk its box, you don't have a cheaper option. You just have to pay more per ounce no matter what. Lucas: That's the collective action problem of shrinkflation. It's an industry-wide phenomenon. And it's not going away as long as companies face input cost pressures and consumers are sensitive to price changes. Luna: So what can the average person do? Pay attention to unit prices — the price per ounce or per pound. That's the only way to compare. Lucas: Absolutely. And stores are required to list unit prices in most states. But how many of us actually look? We grab the familiar bag and go. Luna: It's the cognitive load of modern shopping. You're trying to get in and out, you have a list, you're tired. The last thing you want to do is calculate unit prices. Lucas: Which is exactly why shrinkflation works. It exploits that inertia. Luna: And it's not just groceries. Think about toilet paper. The roll diameter shrinks, the number of sheets per roll drops, but the package says 'double roll' or 'mega roll' so it feels like you're getting more. Lucas: That's marketing shrinkflation. Renaming the size to confuse you. A 'family size' box of cereal today might be the same as a 'regular size' from ten years ago. Luna: We should probably mention that not all shrinkflation is bad. Sometimes it's tied to healthier portion sizes or less packaging waste. But mostly it's just a way to raise prices quietly. Lucas: True. There are cases where a company reduces sugar or sodium and the package gets smaller because the product is less dense. But those are the exceptions. Luna: So the takeaway for today is: keep an eye on unit prices, don't assume the package size is the same as last time, and understand that the official inflation number doesn't capture every way your money buys less. Lucas: If walking through the economy with us has made something click — maybe you now check unit prices, or you understand why the Fed's numbers don't match your experience — then you know the value of this show. It's a lot of work to produce over a hundred episodes, and we keep it ad-free. A small group of listeners helps make that possible through buy me a coffee dot com slash fexingo. No pressure, just a fact: that's what keeps these conversations going. Luna: Yeah, and we appreciate every single person who's chipped in. It really does let us focus on the data and the stories without worrying about sponsors. Lucas: Alright, let's get back to the numbers. One thing I want to highlight is the 10-year breakeven inflation rate — it's at 2.25 percent as of yesterday. That's the market's expectation for average inflation over the next decade. It's been pretty stable, but it's above where it was a year ago. Luna: So the bond market is saying inflation will stay above 2 percent. That suggests the Fed might not cut rates anytime soon, even if the economy softens. Lucas: Right. And if you believe that shrinkflation is a persistent feature of the economy, then even 2.25 percent might understate the real cost increase households face. The gap between market expectations and lived experience could persist. Luna: We'll be watching the next CPI release, due later this month, to see if the official numbers start to reflect any of this. But don't hold your breath. Lucas: For now, the best inflation hedge might be a sharp eye and a willingness to switch brands. That, and maybe buying in bulk — but even then, check the unit price. Bulk isn't always cheaper. Luna: Good advice. And if you have a shrinkflation story — a product that you swear has gotten smaller — let us know. We might feature it in a future episode. Lucas: That's it for today. We'll be back tomorrow with another angle on the economy you actually live in.