BBC News recently covered the fact that family grocery products are getting smaller while their prices are staying the same. For example, Cadbury’s Dairy Milk chocolate bars lost 2 chunks in February. This is a business strategy to help cope with rising costs (in Cadbury’s example, the rise of the price of cocoa) but is also a bit of a rip-off for consumers.
But another question arises, does this artificially alter the rate of inflation (which is calculated by looking at the prices of certain products such as milk and bread) and hide increases by keeping prices the same while the size of the product changes?
I contacted the Office for National Statistics to find out how they calculate inflation and whether this ‘business strategy’ is hiding even greater inflation. Here was the response:
When a product’s size alters, we account for this change. So if a product reduces by 10%, but the price remains the same, we will show a 10% increase in the index. This has always been the case.
I also got a further response:
For some products we collect the price by weight, for example price per kg for some fresh fruit and vegetables, but for most we collect the price for a product. The products collected are initially defined with a description and a weight or quantity so, for example, tea bags per packet of 80. Sometimes the product will have an acceptable weight range, for example mayonnaise 400-500grm. This allows price collectors out in the field to price a range of mayonnaise brands which come in slightly different sizes.
However once a price collector starts collecting a specific brand and weight of a product, they must stick with that brand and weight in future months so far as possible. If the product is no longer available and there is a change in weight, then we have to adjust for that change in weight in calculating the index. Information on the adjustment is in our Technical Manual section 7.2b:
So there you have it. They’ve thought of everything.