The practice of reducing the size of a product while maintaining its sticker price is called:

Correct — A, Shrinkflation. The word is a blend of shrink and inflation, and it names exactly what the stem describes: the seller leaves the price on the label untouched and takes the increase out of the pack instead. A biscuit packet that goes from 100 grams to 90 grams at the same rupee price has become about eleven per cent dearer per gram, but the shelf price that a shopper remembers has not moved, so the increase is much less likely to be noticed or resented. Producers reach for it when input costs rise but they fear losing customers to a visible price rise, and it is common in packaged food, soap and confectionery. Two consequences make it worth knowing beyond the vocabulary. It is real inflation, and a properly constructed consumer price index will pick it up, because index compilers price a fixed quantity, so a smaller pack at the same price registers as a higher unit price. And it is a consumer-protection matter as much as a monetary one, which is why legal metrology rules on declaring net quantity on packaged goods are the usual instrument against it. A close cousin worth naming is skimpflation, where the quantity holds but the quality or the ingredients are downgraded.

• (b)Reflation — A policy action, not a packaging practice. Reflation is the deliberate use of fiscal or monetary stimulus to push prices and output back up after a period of deflation or contraction — the opposite end of the problem.
• (c)Disinflation — A slowdown in the rate at which prices are rising. Prices still go up under disinflation, just more slowly — inflation falling from six per cent to four per cent. Nothing to do with pack sizes.
• (d)Deflation — A sustained fall in the general price level, so that the same money buys more over time. Shrinkflation is the reverse in substance, since the buyer gets less for the same money.

Inflation vocabulary separates the direction of prices, the rate of change of that direction, and the policies aimed at either. Inflation is a sustained rise in the general price level; deflation is a sustained fall; disinflation is a fall in the inflation rate while prices still rise; reflation is deliberate policy to raise prices and demand after a contraction; and stagflation is high inflation together with stagnant output and high unemployment. Shrinkflation sits slightly apart from these, because it describes a firm's pricing tactic rather than an economy-wide condition.

The item is a definition test and yields to elimination. Three of the four options end in a suffix that names a movement of the price level, and all three are things that happen to an economy. Only one names something a manufacturer does to a packet. If the word is unfamiliar, its two halves give it away — shrink, because the product gets smaller, and inflation, because the effect is a price rise. The trap for a well-prepared candidate is to reason that since the sticker price did not change, the answer must be one of the terms describing stable or falling prices; that is precisely backwards, because the price that matters in economics is the price per unit of the good, and that has gone up.

• Shrinkflation is a reduction in the quantity or size of a product with no change in the price, so the price per unit rises.
• Because consumer price indices price a fixed quantity, shrinkflation shows up as inflation in the index even though the shelf price is unchanged.
• Skimpflation is the related practice of holding size and price while reducing quality or substituting cheaper inputs.
• Disinflation means a falling rate of inflation with prices still rising; deflation means the price level itself falling.
• Reflation describes policy intended to raise prices and demand back towards trend after a contraction.

• Reading the unchanged sticker price as evidence of stable prices; the economically relevant price is per unit of quantity.
• Swapping disinflation and deflation, which is the commonest confusion in this family of words.
• Treating shrinkflation as a purely psychological trick with no effect on measured inflation; a well-constructed index records it.

As a term-to-definition item, or in reverse as a definition-to-term item, sometimes with stagflation and skimpflation added to the option list.

• practice — not a real PYQ

  A situation in which the rate of inflation falls from six per cent to four per cent, while prices continue to rise, is best described as

  • (a)deflation
  • (b)disinflation
  • (c)reflation
  • (d)stagflation

  Answer(b) disinflation — the rate of increase slows but remains positive, so prices are still rising.

• practice — not a real PYQ

  The practice of keeping a product's size and price unchanged while substituting cheaper ingredients or lowering quality is known as

  • (a)skimpflation
  • (b)shrinkflation
  • (c)reflation
  • (d)greedflation

  Answer(a) skimpflation — quality is cut rather than quantity, which is the companion practice to shrinkflation.