‘Shrinkflation’ Is in the Air, Online and Everywhere Else

livemint.com:

In case you missed the White House memo, the U.S. economy is fantastic. It’s never been better.

Stock prices and jobs are booming. Inflation and mortgage rates are falling. Happy days are here again.

Yet many Americans remain unhappy. What gives? One explanation could be that government measures of inflation don’t fully reflect rising prices. Sure, headline inflation is nearing the Federal Reserve’s 2% target, but these statistics can be deceiving.

Shrinkflation, paying the same price for noticeably smaller quantities of the same thing, isn’t appearing only in the grocery aisle. It’s everywhere. Americans may be paying around the same prices as they did a year ago, but they are often getting less.

Take airline fares, which the Labor Department’s consumer-price index shows fell 9.4% during 2023. That sounds nice, until you consider that the calculation heavily weighs the “lowest available fare" for a trip—typically offered by budget airlines, which require customers to pay more to bring a carry-on and select a seat in basic economy. Flyers also get less legroom and a charge for beverages or snacks.

Budget airlines have been slashing their fares to attract more customers, though legacy carriers have also increasingly unbundled their prices to compete. That’s why you’ll have to pay $50 extra if you don’t want to be assigned seat 32B, plus $30 more for a carry-on. Some Americans may like differentiated prices, but most don’t like paying more for the same services they used to get as part of the ticket cost.

But enjoy today’s “low" fares, because they will only go up. Airline labor costs are climbing fast owing to recently renegotiated pilot union contracts. Meantime, low-cost carriers are bleeding red ink.