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1. Beware ‘Shrinkflation’ - The Hidden Cost Eating at Your Wallet 

• Shrinkflation means you're paying the same price for products that have quietly shrunk in size, making your dollar stretch less.
  
• One-third of everyday products, especially household goods like paper towels, have reduced in size since the pandemic, while prices remain unchanged.

What you need to know: Americans are still paying more for everyday items after the inflation spike during the pandemic, especially for essentials like food. But there's another issue that hits your wallet quietly - shrinkflation. It happens when products stay the same price but come in smaller sizes. You might not notice at first, but you're getting less for the same money. It’s a sneaky way companies handle rising costs without increasing prices.

Why is matters: Around one-third of about 100 common consumer products tracked by LendingTree¹ have gotten smaller since the pandemic. Leading the pack of these shrinkflation offenders are household paper goods like toilet paper and paper towels, according to their analysis. These everyday items are now giving you less for your money, quietly shrinking in size while prices remain the same. 

Now the Dunham Deep Dive: This shrinkflation trend is something I’ve followed for a while now. So, I am glad it’s being discussed more in the mainstream.

Shrinkflation isn’t exactly a new concept. British economist Pippa Malmgren coined the term in 2009, but it surged after the pandemic as companies faced rising costs. And as explained above, rather than raise prices and risk losing customers, many simply shrank their products marginally while keeping prices steady.

• For example, normally you pay $5 for a 10oz bag of Doritos – but later notice that the bag is just 9oz yet you’re still paying $5 for it. Or said another way, your bag of Doritos just saw 11% of added inflation.

Talk about adding insult to injury, right?

But consumers are catching on and pushing back by avoiding certain brands. Take PepsiCo, for instance. The maker of Lay’s, Doritos, and Ruffles - which leads the U.S. salty snack market - is reversing its shrinkflation strategy². They're now putting more chips back in the bag after sinking sales, so consumers can finally get more for their money.

It’s about time – even though it’s a tad late - since the price per ounce of salty snacks has jumped 36% since 2020, far outpacing the 21% rise in overall grocery prices.

You can check out the full survey here³ to dive deeper into this widespread issue.

It’s yet another sign of the declining standard of living in this era of rising costs.

Figure 1: New York Times, April 2024

2. The Inflation Disconnect - What the CPI Data Misses and Why It Matters  

• While inflation has eased, the CPI doesn't reflect major costs like property taxes, tips, and credit card interest, which continue to squeeze Americans’ wallets. 
  
• With $628 billion in carried-over credit card debt and record-high interest rates, debt servicing costs add a heavy but often overlooked burden to inflation.

What you need to know: Inflationary pressures have eased over the last year, but many Americans still feel the pinch, as the inflation data doesn't fully catch their day-to-day financial struggles.

Why it matters: The government’s key inflation measure - the consumer price index (CPI) - leaves out several major everyday costs that have surged in recent years⁴. Property taxes, tips, and most importantly debt servicing costs (interest) from credit cards to auto loans aren’t factored in. It also excludes a key aspect of home insurance, brokerage fees, and even under-the-table payments to babysitters and dog walkers – all expenses that can quickly add up.

Now the Dunham Deep Dive: It's a murky picture. See, the mainstream media praises the Fed for bringing down inflation, with the CPI showing a 2.4% year-over-year increase in September - which is true. But they rarely (if ever) mention how some major inflationary costs aren’t even included in the CPI.

And I believe - beyond property taxes and tips - the most glaring omission is the massive cost of debt that consumers roll over each month.

For instance, about $628 billion in credit card debt is carried over or unpaid each month, with an average interest rate of around 22% (a record high⁵). This means a $10,000 balance grows by $2,200 in added debt annually, and the following year, it’s 22% on $12,200. And on and on.

So, while the CPI tracks price changes in items purchased, it doesn’t account for the mounting debt costs from financing those purchases.

This is something to keep in mind when trying to gauge underlying economic trends.

Figure 2:  Bloomberg, October 2024 

3. China’s Steel Glut: What’s Fueling the Surging Exports and the Trade Tensions That Come With it 

• China’s steel exports hit an eight-year high, sparking more trade investigations and global friction. 
  
• A new stimulus might curb China’s exports and offer other countries a chance to export more to China. Still, China's overcapacity continues to weigh heavily on global markets and pricing.

What you need to know: China’s steel exports hit an eight-year high last month, driven by overcapacity due to a property downturn and weak domestic demand. The surge in exports has sparked concerns about escalating trade tensions. 

Why it matters: China exported 10.15 million tons of steel in September, up 25.9% from last year, hitting the highest level since June 2016, according to customs data⁶. However, the price of exported steel dropped by 11.62% compared to a year ago. As a result of its steel overproduction and flood of exports, China is now facing more trade investigations. So far this year, there have been 28 investigations from 12 countries, including the EU, U.S., Brazil, Vietnam, and Malaysia, according to China's Trade Remedies Information platform.

Now the Dunham Deep Dive: Unsurprisingly, China continues flooding the global market with steel to counter its economic slowdown, frustrating other countries as their own steel industries face potential job losses.

I’ve talked about this before. Back in March, I wrote "Trade Wars Redux? China's Manufacturing Glut and Its Global Implications," highlighting how China relies on this strategy to prop up growth and why it isn’t likely to stop.

The key issue here is China’s "zombie capacity" – aka unviable companies kept alive by government subsidies.

• In short, Beijing pays firms, including steelmakers, to keep producing, thus sustaining jobs and growth.

But with weak domestic demand, much of this excess capacity pushes prices down and is dumped abroad, creating ripple effects in other economies. I discussed this in more detail in April’s "Trading Shots: Escalating Trade Wars and Echoes from the Great Depression."

As the global trade war heats up, no country wants to deal with job losses or slowing growth thanks to China.

It's worth noting that China recently launched a major stimulus to revive its stagnant economy, which could reduce its aggressive export push, and might even open the door for other countries to export more to China instead (lifting global demand).

Although I’m skeptical of this – time will tell.

Figure 3:  Bloomberg, October 2024 

Anyway, who knows what will happen?

This is Just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. Shrinkflation has affected one-third of grocery items, analysis finds. Here are the worst offenders. - CBS News
2. Tostitos and Ruffles shrank their bags of chips. It backfired | CNN Business
3. 71% of Americans Have Noticed Shrinkflation | LendingTree
4. US CPI Inflation Doesn’t Account for Some of Your Biggest Expenses - Bloomberg
5. Average Credit Card Interest Rate in America Today | LendingTree
6. China’s steel export surge prompts concerns it could add to trade tensions | South China Morning Post (scmp.com)

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