Common Cents & The Mean Grocery

This past week, the government reported just about every measure of inflation was lower in July than it had been in June. Even so, the trailing 12-month numbers are still near levels the U.S. economy hasn’t seen in decades. Basically, while the rate of inflation was lower than it has been, prices are still extremely high.

Therein lies the problem when you focus on relativity in a world of absolutes. As strange as it might sound, lower inflation doesn’t mean lower prices. It simply means a lower rate of increase in prices. Economists use the word deflation to describe falling prices.

Then there is the whole issue of so-called “shrinkflation.”

According to Investopedia.com, the definition of shrinkflation is:

“Shrinkflation is the practice of reducing the size of a product while maintaining its sticker price. Raising the price per given amount is a strategy employed by companies, mainly in the food and beverage industries, to stealthily boost profit margins or maintain them in the face of rising input costs.”

Who hasn’t seen this recently at the grocery? Am I right?

Long years ago, I used to make a pretty decent lasagna. The original recipe I had, before making it my “own,” called for a 16 ounce can of whole tomatoes. While that might sound like so much so what, such a thing is a unicorn in 2022. The standard size is now 14.5 ounces and will likely be trending lower.

Further, what is a half-gallon of ice cream these days? Unless you buy Blue Bell, your half-gallon is probably 1.5 quarts. How about your cold 12 ounce beer? Well, certain brands like Red Stripe and Stella Artois, among others, now have 11.2 ounce bottles.

How much longer will this shrinkflation last? Unfortunately, like many of the recent higher prices, it is probably here to stay. Consumers will simply have to adapt.

I mean, how much has the 1.5-quart “half-gallon” of ice cream really slowed your roll? The 14.5-ounce can of tomatoes? The canned tuna that is now only 4 ounces after you drain it? To that end, the amount of fish in a can of tuna has decreased some 28.5% since the start of the century. And here I was wondering why I now needed almost two cans to make the same amount.

You know, perhaps I should reduce the size of my sandwiches. That would actually be a very good thing.

For as long as anyone can remember, American food companies have tried to get consumers to stuff their faces. The never ending salad and breadsticks. $5 foot-long subs. Supersized meal for $1. Buy one pizza, get a second one of equal or lesser value free. Any size soda you want, plus free refills, for like a nickel. The small fry at McDonald’s used to be the large.

The list goes on and on, as have many of our waistlines. But is this “let’s see how much we can eat and not get sick” trend over?

Interestingly, and strangely enough, it is probably here to stay along with shrinkflation. While they might seem mutually exclusive, they aren’t. This is largely due to businesses getting a larger profit margin on a smaller amount of product. Essentially, they make more profit per unit. Therefore, they lose less per, say, a “buy one get one” promotion than they did previously.

To be sure, twice of the new amount is less than twice the previous amount. However, it is still a gracious plenty more than anyone really needs. Or at least so I say.

So, higher prices? Yep, they will likely mostly stick. Shrinkflation? If people are buying 14.5-ounce cans of tomatoes, why mess with success? Promotions to get us to eat and drink more than we would, could or should? Isn’t that the American way?

When the dust settles, the American economy and consumer will adjust to higher prices and smaller portions. The baseline for each will essentially reset. This isn’t the first time this has happened in our nation’s economic history. It won’t be the last either.

When you think about it, as much as the recent inflation has hurt, our food industry is pretty incredible. Consider the sheer volume of products, brands and different foodstuffs. Not so long ago, what we take for granted in the grocery store would have been unfathomable. The products simply didn’t exist, at any price.

As I have told many people this year, the richest kings and queens throughout history didn’t have access to the same level of goods and services the average American has today. Nowhere is this more true than at the grocery store.

Please keep that in mind the next time you go shopping. Also keep in mind prices will be going up at a decreasing rate moving forward. At least that is what the data told us this week. Oakworth Consumer Price Index.

Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows not only on this day but on every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.

John Norris
Chief Economist & Wicked Smart Grocery Shopper


Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.