Value Deflation

Value deflation, or shrinkflation, occurs when retailers and service providers cut their costs and sell smaller packages, give out smaller portions, or generally provide less for the same price so as to maintain the same sticker price. Businesses may do this as a way of stealthily raising prices when costs are rising and consumers are particularly price conscious. Economy-wide value deflation is actually a form of price inflation to the extent that it results in lower real consumption at the same price level. Value deflation can lead to an understatement of the rate of inflation and the cost of living if it is not accounted for in the calculation of price indexes.