The Impact of Rising Food Prices, Shrinkflation, and Price Gouging on Consumers

Consumer purchasing choices and behaviors have shifted in response to the recent upsurge in food costs. Shrinkflation and price gouging have compounded the already significant financial impact on consumers, causing shoppers to radically reassess how their money is spent and ask, “How does inflation affect me?”

Here we will examine data gathered in a consumer confidence survey carried out by PissedConsumer.com to find out how food prices going up is influencing customers' spending behavior and purchasing decisions. We will also discuss how inflation affects consumers in general, what is causing it, the outlook going forward, and provide some insight on the matter, drawing on the thoughts of economists, analysts and academics as well as online reviews posted by consumers.

In an attempt to determine how consumers' purchasing power has changed, what products have increased in price the most, where they prefer to shop, and what they think about price gouging and shrinkflation, the survey* asked a cross-section of consumers to share their opinions on how rising food prices, shrinkflation, and price gouging impact their shopping habits and preferences.

Let’s see what the survey revealed.

• Survey results
• The inflation issue
• Inflation and consumer purchasing power
• Eggflation
• Shrinkflation
• Price gouging

Survey Results

According to the PissedConsumer.com survey, the impact of inflation has been felt by almost everyone, with 94.5% saying that inflation has influenced their shopping behavior. 

When asked “What category has increased in price the most in your opinion?”, groceries took an overwhelming lead, with a huge 60.2% of inflation survey respondents reporting that this was where they had seen the biggest jump in prices.

In second place came fuel with 6.8%, followed by utilities - 6.5%, real estate - 5.7%, auto - 2.5%, healthcare - 1.6%, travel - 1.6%, electronics - 0.9%, clothing - 0.3%, and transport - 0.3%.

In response to the question “Please specify products that increased in price the most, in your opinion”, eggs was mentioned most, with 78.9% of respondents saying this was the product where they had seen the greatest increase in cost. This was closely followed by meat - 68.9%, then milk - 48.3%, butter - 45.6%, vegetables - 42.9%, oil - 34.7%, bakery - 30.2%, flour - 24.2%, and everything - 10.24%

Egg prices have become a major talking point of the current inflation surge. We’ll take a look into the how’s and why’s of this later. The next inflation survey question was “Egg prices have increased by 60% according to the Consumer Price Index. Have you noticed an increase in egg prices? The answers to this swayed heavily towards Yes, with 94.3% of respondents giving the affirmative, and a mere 2.4% saying No.

The most common consumer response to rising prices is going to be changing where they do their shopping for everyday essentials. When the question of “Which grocery store chain has the cheapest prices?” was put to them, Walmart came out on top, 33.6% citing this store. Then came Aldi - 23.6%, and DollarGeneral - 10.9%.

To “Which grocery store chain has the highest prices?”, WholeFoods claimed 46.3%, then Walmart - 15.5%, and Publix - 4.3%.

An oft-heard complaint is of companies taking advantage of inflationary climates to take advantage and exploit consumers. The PissedConsumer survey went on to ask, “Have you noticed any price gouging on groceries?” To which 76.5% of survey participants said Yes, and a pale 17.5% said No.

Another phenomenon we’ll explore is that of “shrinkflation”, as the responses to “Does shrinkflation affect your wallet?” show it to be a significant concern for shoppers, with 83% of respondents saying Yes it does, and that it has made big changes to some items.

Finally, when asked “According to consumers' reports on PissedConsumer.com, the following products have been affected by shrinkflation. Do you agree?” toilet paper was recognized by many as being affected, with 68.4% of respondents saying so, then milk, with 57.5% agreeing, then chips - 49.7%, cookies - 46.4%, crackers - 40.1%, cigarettes - 22.6%, and everything - 7.22%.

The Inflation Issue and How It Impacts Consumers

How does inflation affect the economy? The term ‘inflation’ is used to refer to an increase in the prices of everyday goods and services in an economy. Put simply, over time, the purchasing power of the average household decreases as prices increase. This metric is primarily tracked through the Consumer Price Index (CPI), which follows movements in the price of staple consumer goods and services, such as grocery costs.

Inflation is influenced by a number of factors, including the amount of money circulating in the economy, the cost of raw materials and production, and the current demand for goods. Inflation can come as a consequence of many different forces, such as commodity prices, monetary policy, and national debt. 

When inflation becomes too high or too volatile, it can have negative consequences for the economy. The knock-on effects of rising production costs and the ensuing financial market volatility severely hinder confidence to invest and the ability to plan for the future. Job losses and stagnation are the consequence.

Yet, inflation can, in some cases, introduce positive effects on an economy. One pro is that incremental inflation can often prompt economic development, where consumers, as well as businesses, seek to take the initiative and spend now to take advantage of the forthcoming increase in costs. Such action sees an upsurge in employment, and an overall stimulation of economic activity across the board.

However, in the wake of the Covid-19 pandemic and the ripple effects of the full-scale Russian invasion of Ukraine, financial stimulus and supply chain issues have seen inflation impact hard and surge to levels that haven’t been seen in decades.

“So a lot of it started when the pandemic happened and so that's when we really started to see things climb and it's just not the pandemic. We've got climate change issues, we've got diseases within the food supply chain, and then we've got other anomalies that have been happening that it's just been impacting everything overall and that's really the gist of it. And so in 2022 we really saw inflation really take off. 2023, it seems like things are going to start to come down.” - Professor Patrick Penfield, Professor of Practice - Supply Chain Management and Director of Executive Education Syracuse University.

So how severely does inflation impact consumers? What is the forecast for inflation in the coming months? Will the prices continue to go up? When will grocery prices go down?

In the opinion of economist and Neil Moskowitz Professor of Economics and Finance at the University of Maryland, Dr. Şebnem Kalemli-Özcan:

“Very badly, inflation makes consumers poorer. Inflation will come down since the federal reserve is now taking action to bring inflation down.”

Indeed, governments and central banks are taking a range of measures to address the current inflationary environment. This includes adjusting monetary policy, such as by raising interest rates, as well as taking steps to address supply chain disruptions and other factors contributing to rising prices.

How Does Inflation Affect Consumer Purchasing Power?

High inflation will erode the budget of consumers, leading to lower overall economic growth and reduced standards of living. 

Inflation affects different people in different ways. The older demographics, such as retirees, that live on a fixed pension will see the cost of living escalate with little they can do as grocery prices shoot up and everyday items such as those mentioned in the inflation survey become more and more inaccessible.

“At a time with inflation and food prices hurting millions, especially seniors who sometimes share plates with the spouse to save money, don't cut our portions and by doings this, ruin our meal.” - says a Cracker Barrel customer in a review #4430447 on PissedConsumer.

Simply put, when the price tag of everyday items creeps up, you get less and less for the dollar in your pocket. This hit to purchasing power can be felt in the daily shop and also devalue savings and investments.

If the worker’s pay packet doesn’t keep up with the pace of inflation, then they’ll find themselves in a situation whereby they struggle to maintain the living standards that they have become accustomed to. Furthermore, the percentage of disposal income decreases as the cost of necessities such as housing, food, and healthcare ramp up.

We asked the associate professor at the McDonough School of Business of Georgetown University, Professor James Angel, how inflation affects consumers’ purchasing power, and to give his forecast on inflation in the coming months:

“There are two types of inflation, and we are currently suffering from both. The first is monetary inflation, when too much money is chasing too few goods: The government printed too much money and handed it out during the pandemic. We are now paying the price, with interest, for those stimmy checks we got. The second is a real rise in the cost of living driven by reductions in supply and increases in demand. The Russian invasion of Ukraine has pushed up demand while reducing supplies of food and energy. Longer term, the aging population (more consumers and less workers) and less global trade will continue to push up the cost of living. Inflation will continue to plague us, but hopefully at a slower rate.” 

Eggflation

“Lately I have been buying large white eggs in a twin pack, 36 eggs… it has come to my attention that not all the eggs are the same size in each carton...some of the yolks are half the size of some others…” – shares a Great Value customer in a review on PissedConsumer (#4408545). 

An outbreak of avian flu took place in January 2022. This was the most severe case of the disease since 2015, but it went on longer this time, and many more birds had to be culled. In excess of 44 million chickens either succumbed to the virus or were destroyed. 

According to FRED, as of February 2023, a dozen large Grade A eggs cost, on average, $4.21, almost double what they fetched a year prior. Grocery stores have struggled to keep the shelves stocked, and even put a per-customer limit on purchases. 

Wholesale costs of wheat and grains, the staple chicken feed, are also culpable. Supply has been constrained, and prices have risen due to the war in Ukraine, as both Ukraine and Russia are major exporters.

Professor Patrick Penfield thinks the situation will stabilize as the seasons progress, however:

“…but egg prices are starting to come down. I think the nice thing is that we've got the summer coming, so fruits and vegetables, especially in your particular regions will come down and price also. So I think it's just about a question of shopping and looking for the best opportunities.”

Shrinkflation: The Stealth Inflation

The term “shrinkflation” is often bounced around when the economy struggles, but what does it actually mean? Well, it’s not a complex phenomenon; it simply refers to the decreasing size of staple products over time.

Shrinkflation is an increasingly common practice whereby manufacturers will reduce the size or quantity of a product without correspondingly lowering the price. A tactic which maintains profit margins while also maintaining the same shelf price. 

With cookies, cereals, snacks and chocolate bars shedding grams, the play is the hope that consumers may not notice the size reduction and remain happily oblivious. Yet, in fact many people do recognize that they are getting less for more money as a result of shrinkflation, and this can be confusing and frustrating for many, especially those who have years of experience and have come to depend on the specifics of a product.

"I simply am wondering why you changed the recipe, size and quality of Chips Ahoy? They are smaller, more crumbly and do not have the same taste that they had in the past. It's obvious that shrinkflation has been in existence in the cookie industry for some time now, but with the prices continuing to go up, why do you need to lower the quality as well?..." - says a Nabisco customer in a review on PissedConsumer (#4365597). 

Another consumer expresses some concerns at PissedConsumer.com and writes in their review (#4255878): "Recently I have noticed that my Pall Mall 100's cigarettes are burning down much faster than they used to. So I found an old filter in a rarely used ashtray in my garage, and compared it to the current cigarette. Sure enough - visibly smaller in diameter. I estimate about 25 % less tobacco in each cigarette..."

In the words of Sylvain Charlebois, Director of the Agri-Food Analytics Lab at Dalhousie University in Nova Scotia, Canada: 

“Shrinkflation is something that really upsets a lot of people, a lot of consumers. It is basically a packaging strategy allowing manufacturers to reduce quantities while charging you and me the same price. We've seen shrinkflation impact most food categories. It's mostly outside of fresh. So packaged goods and non-perishables have been impacted by shrinkflation, and it's been around for decades. But every time commodity prices go up or input costs, manufacturers tend to actually use shrinkflation as a strategy not to lose market share.”

One of the most significant ways that shrinkflation has affected consumers is by reducing their loyalty to previously favored brands. As manufacturers shrink the size of their products, consumers may begin to feel like they are being ripped off or taken for a fool. As Sylvain Charlebois assets:

“They don't like it, of course. Because most shrinkflation cases are deceiving, you go to the grocery store, you don't look at quantities. You buy a product you've always bought, only to come home and realize that your bite-size is much smaller than before, or the number of bars has been reduced by one or the number of grams, the number of grams.”

Or let's say for example, you're accustomed to buying a package of spaghetti or pasta for your family, and you realize that all of a sudden, one package is not enough, so you have to buy two instead of just one, which could actually lead to more food waste eventually, because if you're accustomed to buying one package, well, then you have to buy more, and you may not use the extra. So those are things that really infuriate consumers.”

So, clearly shrinkflation has also caused consumers to grow ever more conscious of the price per unit of a product, not just the overall price. How do consumers respond? They’ll likely switch to a different brand that offers a greater weight of the same product for a similar price. For example, a consumer may compare the price of a small bag of coffee to a larger one and find that the smaller package is more expensive per gram. They’ll then go for the larger sized bag regardless of whether they need that much coffee or not.

Shrinkflation has also impacted purchase decisions in raising demand for own-brand goods. Supermarket products are generally at a price that undercuts the same offerings from name brands, so changing these generic goods will be one of the first actions consumers make to make their budget go a little bit further. 

Price Gouging

“In fact, at a time when everyone is struggling to make ends meet due to inflation, Goodwills’ answer has been to RAISE its prices!” - PissedConsumer review #4370932.

When we talk about “price gouging”, we mean the practice of charging excessively high prices for goods or services during times of crisis, emergencies, or other difficult circumstances. This can occur when demand for a particular product or service reaches a peak, and retailers and manufacturers take advantage to top up their profits.

The impact of price gouging on consumers can really hit hard. When the cost of staples like food, water, and medicine are raised to inaccessible levels, those who can’t meet the new asking prices will find themselves in a sticky situation whereby they can’t be sure of how they are going to pay for the daily essentials. This can lead to not only necessary lifestyle changes but the quality of life and even health concerns, particularly in situations where there is limited access to alternative sources of these goods.

At the extreme end, perceived profiteering can also lead to social unrest. Consumers don’t take kindly to the idea that they are being exploited, particularly in the throes of a crisis. 

Going Forward

So how can we not just adjust to the issues of inflation? What can we do to tackle them? What are the top issues in the US economy today? What is the cause of those issues?

“The US has several challenges that affect the economy:

1) Demographic changes. The population is getting older with relatively fewer younger workers. This will continue to stress Social Security, Medicare, and other social services. 

2) Geopolitical challenges: We are in the midst of a de-globalization. After the end of the Cold War, we all benefited from increased trade such as cheap manufactured goods from China. The combination of Russia's invasion of Ukraine and China's aggressive military posture will decrease global trade, pushing up costs for everyone. 

3) Climate change. A hotter planet means more extreme weather, from droughts to floods. Rising sea levels will bring rising costs to protect our shorelines while the planet deals with billions of climate refugees and wars over shrinking resources.

4) Political grandstanding. The political mess in Washington is preventing our country from figuring out and implementing sane responses to our challenges. Rather than working together on solutions, both parties are more intent on making the other party look bad.”  - Professor James Angel

The US is not alone in facing this. The economic challenges ahead of the US are reflected worldwide, and the demands are universal. As the challenges posed by geopolitical tensions, interruptions to trade, pandemics and the changing environment impact consumer confidence, they apply increasing pressure on states and policymakers to negotiate and find a clear, collaborative path to overcoming these critical obstacles, whilst consumers need to be shrewd and savvy to mitigate inflation’s everyday impact. 

*PissedConsumer.com conducted this online survey of over 400 U.S. consumers between March 1 - 31, 2023.