Economist Dr Pippa Malmgren was deputy head of global strategy at UBS and an economic adviser to US presidents George W. Bush and Barack Obama. She was among the few to predict the GFC, and the signs she observed, which so many missed, form the basis for her recent book, “Signals: How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy”.
Malmgren visited Australia this week and in an interview on ABC TV’s Lateline, she spoke about biscuit company Arnott’s, which has had some friction with customers in recent years, between messing with the flavour of Shapes, and cutting down serving sizes.
Consumer advocacy group Choice campaigned earlier this year on product weights disappearing from the front of packaging and fluctuating weights for a product. Among the companies they singled out was Arnott’s for selling Chewy Caramel Tim Tams for the same price as Originals – except packets for the former weigh 25 grams less than Originals – and you get 9 biscuits, rather than 11.
Arnott’s has managed to anger more customers this week because its kid-sized packs of Tiny Teddies have been downsized from 10 to eight biscuits while the price remains the same.
It’s not an original idea: American Airlines became a business case study back in the 1980s when Robert Crandall, the company’s president, suggested taking one olive off every salad because no one would notice, and saved $100,000 annually.
Reducing portion sizes but keeping the price the same induced what Malgrem calls “shrinkflation”, and it effectively makes some consumer goods more expensive. It’s has been a big talking point in Britain lately, and Arnott’s has been on the end of customer anger over the tactic this week when it shrunk its packets.
“I saw row upon row of new boxes of downsized product this week when I did my groceries. Consumers aren’t stupid. Less product, same money, nuh-uh. They no longer go in my trolley. For goodness sake, tiny teddies hardly had anything in the little packet as it was, now there are less in the box. Not anymore,” wrote another unhappy customer on Facebook.
But beneath the anger, what’s interesting is what this phenomenon says about the economy.
Speaking to Emma Alberici on Lateline, Malmgren said that while Australia escaped the worst of the GFC, and did not have to endure a recession, there was still a price to pay — and it’s in hidden inflation.
Yesterday’s official data showed inflation in Australia remains low, a phenomenon being witnessed around the world in advanced economies. Malmgren argues, however, that in all sorts of ways, true costs of living are rising.
She explained on Lateline:
I know the central bank here says there’s no inflation. They say the same thing in the US and the UK where I live but the one thing everybody talks about is the rising cost of living. The grocery bill is going up. Rent is going up. The rail fare is going up, but there’s no inflation.
Well actually, the whole point of record low interest rates and all this money that got chucked into the world economy was to make asset prices rise. That means the stock market, that means house prices. So we can’t be surprised that our cost of living is going up.
And the last time Malmgren was in Australia, she noticed something about Arnott’s.
“Tim Tams was just starting to announce they were going to make the cookies and the biscuits smaller. But you’re going to be paying the same price as you used to pay. So your price per unit, or per weight is going up. That’s an early sign inflation is making its way through the system,” she said.
Alberici asked Malmgren if “shrinkflation” was a word she made up.
“Yeah I did,” Malgrem said.
“It seems to be in wide use now which I’m delighted about because it means people are conscious of this.”
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