Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Lets Companies Downsize Quality
Transcript
- Lucas: You ever buy a roll of trash bags and feel like they rip more easily than they used to? Luna: Yeah, actually. I switched brands last month because I thought the old ones were getting flimsy. But maybe it wasn't just me. Lucas: It's not. That's a phenomenon economists call 'quality fade.' And it's a sneaky cousin of shrinkflation — the one where a bag of chips gets lighter but the price stays the same. Luna: Right. So with shrinkflation you can see the smaller package. But with quality fade, you don't notice until you're picking up a broken bag of trash. Lucas: Exactly. And for companies, it's a perfect tool in an inflationary environment. When raw material costs go up, they have three choices: raise the price, reduce the quantity, or reduce the quality. Raising the price is the most visible — customers will notice and maybe switch. Reducing quantity is what we've seen with chocolate bars and cereal boxes. But reducing quality is invisible until you use the product. Luna: So how do you even track quality fade? The Bureau of Labor Statistics — they calculate the CPI — do they account for it? Lucas: They try to. The BLS has something called 'hedonic quality adjustment.' When a product changes — say a smartphone gets a better camera — they estimate how much of the price increase is due to that improvement and strip it out. But quality fade is the opposite: the product gets worse, and the price stays the same. That's harder to adjust for. Luna: Because there's no new feature to measure. It's just... worse. Lucas: Right. So the CPI might show a 2.4% annual inflation rate, like we saw in the April report — CPI at 332.4, up from 330.29. But that number doesn't fully capture quality fade. If your trash bags are 20% weaker, your real cost per use has gone up, even if the price per roll hasn't. Luna: That's a good way to put it. Cost per use. Lucas: Let's take an example from a category everyone knows: laundry detergent. A few years ago, you could buy a jug that lasted two months. Now, some brands have concentrated formulas — you use less per load, but the bottle is smaller and the price is the same or higher. That's a mix of shrinkflation and quality fade if the new formula doesn't clean as well. Luna: I've definitely heard people complain that their favorite detergent doesn't get stains out like it used to. Lucas: There's data on this too. Consumer Reports has tested products over time and found that some brands quietly change ingredients to cut costs. For example, a brand of paper towels might reduce the number of sheets per roll — that's shrinkflation. But they might also make each sheet thinner — that's quality fade. Both happen together. Luna: And the packaging looks the same. So you don't think to check. Lucas: That's the whole point. Companies know that consumers have 'reference prices' — what they expect to pay for a roll of paper towels or a box of cereal. If you raise the price past that reference, people notice and may buy a different brand. But if you keep the price steady and degrade the product slowly, you avoid that sticker shock. Luna: So it's a way to protect margins without losing customers. Lucas: Exactly. And in this environment — with the Fed holding rates at about 3.62%, and the ten-year breakeven inflation rate at 2.39% — companies are still dealing with elevated input costs. The breakeven rate has come down from last year, but it's still above the Fed's 2% target. So pressure remains. Luna: And quality fade is harder to reverse. If you make a trash bag thinner, customers might not notice for months. By the time they do, you've already saved a lot of money. Lucas: And if they do notice and complain, you can always 'improve' the product back to where it was and call it a new recipe. That's a classic playbook. Luna: So what can someone actually do about it? Because it's not like we can test every product ingredient. Lucas: A few things. One, pay attention to unit pricing — cost per ounce or per sheet — and track it over time. If the price per ounce stays the same but the product feels worse, that's a signal. Two, read reviews, especially on Amazon or consumer forums where people document changes. Three, be willing to switch brands. If enough people leave a brand that degraded quality, they eventually get the message. Luna: There's also a regulatory angle. Some countries require companies to notify consumers when they change a product's formulation. The US doesn't have that, but consumer advocacy groups push for it. Lucas: Right. And there's been talk at the FTC about looking into 'shrinkflation' and quality fade. But it's slow. For now, the burden is on us. Luna: I want to jump in here — because this kind of conversation is exactly why we do this show. We try to give you practical ways to protect your purchasing power. And if you've gotten something out of these episodes, a couple of dollars a month is genuinely what keeps these going. That's buy me a coffee dot com slash fexingo. No pressure, just if it's made a difference. Lucas: Yeah, we keep the show ad-free, and listener support is the only reason that's possible. So thanks to anyone who's chipped in. Luna: Alright, back to quality fade. One more thing I think is interesting — how does this affect inflation data itself? Lucas: Great question. If the BLS doesn't fully capture quality fade, then the official CPI might understate the true cost of living. Some economists argue that inflation feels higher than the numbers suggest precisely because of hidden erosion like this. Luna: Right. So the 332.4 CPI might feel like 3 or 4 percent in real life. Lucas: Exactly. And that disconnect can affect everything from wage negotiations to Social Security cost of living adjustments. If we're not measuring the true erosion, then benefits might not keep pace. Luna: That's a big deal for retirees especially. Lucas: It is. So quality fade isn't just a nuisance at the grocery store. It has real implications for how we measure economic well-being. Luna: Alright, next time we'll talk about another hidden inflation tactic. Thanks for listening. Lucas: Take care, and keep an eye on those unit prices.