During the period after the inflation rate began to rapidly increase in the spring of 2021, a number of news articles noted cases of "hidden inflation." This hidden inflation took two forms: (1) The quality of some services was declining, and (2) some packaged goods contained smaller quantities at the same price. The first type of inflation involved, for example, hotels no longer offering free hot breakfasts or cleaning rooms every day during a customer's stay. The second type of hidden inflation involved, for example, the number of tissues in a small Kleenex box being reduced from 65 to 60, although the price was unchanged. This second type of hidden inflation is called
shrinkflation.
When compiling the CPI, the BLS takes shrinkflation into account but not most declines in the quality of services.
Sources: Dee-Ann Durbin, "No, You're Not Imagining It-Package Sizes Are Shrinking," apnews.com, June 8, 2022; Annie Gasparro and Gabriel T. Rubin, "The Hidden Ways Companies Raise Prices," Wall Street
Journal,
February 12, 2022; Alan Cole, "How I Reluctantly Became an Inflation Crank," fullstackeconomics.com, September 8, 2021; Scott McCartney, "The Incredible Disappearing Hotel Breakfast-and Other Amenities Travelers Miss," Wall Street
Journal,
October 20, 2021; and Neil Irwin, "There Is Shadow Inflation Taking Place All Around Us," New York
Times,
October 14, 2021.
a. Is it easier for the BLS to correct for the effects of shrinkflation than for the effects of declining service quality, such as less frequent housekeeping services in hotels or less frequent bathroom cleaning in restaurants?
A.
Declining service quality, because lower-quality goods and services have lower prices than higher-quality goods and services.
B.
Shrinkflation, because lower-quality goods and services have lower prices than higher-quality goods and services.
C.
Shrinkflation, because the price of new, smaller products can more easily be observed and quantified than a decline in quality.
D.
Declining service quality, because it is easier to see a decline in service quality without purchasing the service; for shrinkflation, individuals must purchase the good to see its decline in size or quality.