Shrink, Stag and Hyper... Understanding the 'Flations'

Price surges are everywhere — at the gas pump and in grocery stores. While inflation gets its fair share of the top headlines lately, there are a number of other 'flations making their way into conversations.

We're talking the lesser-known cousins of inflation: Shrinkflation, Stagflation and Greedflation. Curious to know how they relate to each other and what they mean? Let's dive in.

What is shrinkflation?

You're likely not imagining it — those cookies you've been buying for ages still cost the same, but they're now about half their original size. And your favourite cereal brand may now come in a smaller box, but the cost has remained steady. Welcome to shrinkflation.

Shrinkflation is commonly referred to as a packaging downsize. Many manufacturers are quietly reducing package sizes without lowering prices as a way to deal with the impact of rising inflation. For the same price, you may see 95 sheets of paper towel now instead of 110 just a few months ago. It's a subtle and stealthy way for firms to cope as surging material costs erode their profit margins.

What to watch for? Unless you compare older packaging to new packaging on a regular basis, shrinkflation can be hard to detect. Keeping an eye on the number of servings in a box and product weights can help you start to gauge if you're getting as much for your dollar as you used to.

What is stagflation?

Stagflation is something of a perfect storm in economic terms, and occurs during a period that sees an unfortunate mix of slow growth within an economy, along with high levels of inflation and unemployment. Usually, these three economic forces don't happen together since unemployment and inflation rates typically move in opposite directions. Still, it isn't unheard of. In the 1970s, stagflation did occur during an oil crisis that saw oil prices climb sharply while supplies dwindled thanks in part to a supply embargo.

While ongoing uncertain economic conditions could help explain why the term pops up more frequently these days, Bank of Canada Governor Tiff Macklem said earlier this year he is quite certain that policymakers will be able to avoid a return of 1970s-style stagflation. Find out more in What is Stagflation?

What is hyperinflation?

Hyperinflation involves fast and excessive price surges within an economy, typically defined as when the rate of inflation increases at more than 50 per cent per month, according to the World Economic Forum. While the term hyperinflation has been making its way into headlines, it's rare in developed economies and has been mostly limited to developing countries.

Some consider tulipmania to be one of the earliest examples of hyperinflation, while a more modern-day example is Zimbabwe, where after a number of economic shocks the country's monthly inflation rate for November 2008 reached 79.6 billion per cent, according to the Cato Institute. Venezuela recently broke a four-year stretch of hyperinflation, according to Bloomberg, after marking a full year in 2021 with monthly inflation below 50 per cent. (The country ended 2021 with inflation at 686.4 per cent, the news organization reported.)

What is greedflation?

Greedflation, though not an academically accepted term, has been taking a bit of the 'flation spotlight lately. In a nutshell, it's defined as price increases driven by corporate greed – A.K.A. price gouging. It's the idea that a monopoly in the market can fuel inflation by taking advantage of its position to artificially hike prices as a means of increasing profits. The term made headlines recently in the U.S. after some U.S. lawmakers claimed inflation has been exacerbated by corporate greed.

What is inflation?

Of course, the term we hear and read about most often lately is inflation. At its core, it's the general increase in the price of goods and services over time, which reduces our purchasing power. This means that $100 today may buy you a much lighter load of groceries than it did even a year ago.

We have seen inflation increase in 2022, with Canada's annual inflation rate hitting a nearly 40-year high of 7.7 per cent in May. Inflation affects all aspects of the economy — from consumer spending and business investments, to government policies and interest rates.

Traditionally, a moderate level of inflation (around two per cent) is considered a positive signal. This is because it's associated with economic growth. Higher levels of inflation are often perceived as a negative signal – suggesting the economy may be overheated. This can lead to an economic downturn, with some businesses suffering more than others. Find out more in What is Inflation and How Does it Affect Investors?

With uncertainty defining the economy and more interest rate hikes expected in the months ahead, many of these 'flations will likely continue to make their way into everyday headlines. And we'll be keeping an eye out for others that we haven't even heard of yet!