Finance concept hand holding inflated bank note

Investopedia defines Shrinkflation as “the practice of reducing the size of a product while maintaining its sticker price.” In other words,

Shrinkflation is a form of inflation except that instead of the price going up the size or amount goes down.

I bring up Shrinkflation because its cousin, inflation, has been very much in the news as of late. Consider this headline from Bloomberg Wealth: “Food Prices Are Soaring Faster Than Inflation and Incomes.”

Of course, food is not the only product category to feel the wrath of higher-cost inputs. Our own toy industry is currently experiencing the impact of rising raw material costs and exorbitant shipping container costs.

At this point, toy companies are being cautious about discussing the possibility of price increases. After all, Walmart, Target, and Amazon have a history of pushing back and pushing back hard against proposed price increases.

Companies like Hasbro, Mattel, and Lego are far better able to absorb price increases without passing them on to retailers and consumers. It is, however, hard to see how smaller toy companies can avoid raising prices, with shipping container prices increasing in some cases by five times. For some toy companies, it could be a matter of survival.

Let’s hope that the supply chain unkinks and that shipping container prices go back to some kind of normal. Let’s also hope that the cost of raw materials declines as well. If they do not, it is difficult to see how prices won’t go up, or product quality go down, i.e., shrinkflation.

Having to choose between raising prices or reducing quality is a lose-lose proposition for everyone.

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