There’s a new inflation consequence hitting consumers: “Shrinkflation.”Some companies are dealing with inflation in their supply costs by shrinking the sizes of their products, to avoid the customer backlash that comes with raising sticker prices.
Inflation defined in the simplest terms is "an increase in the money supply". This increase leads directly to a rise in prices, or at least puts an upward pressure on prices. The reason we are seeing prices rise fairly significantly at this time is largely because of a massive increase in the money supply in the form of various government spending and stimulus. This money isn't taken from a supply of savings but instead it is created or borrowed and injected into the economy. This is exacerbated by shortages caused by COVID, or more specifically because of various government policies implemented because of COVID.
In order to hide these price increases for marketing purposes, companies will often shrink packaging size while keeping prices the same. Maybe that 16 oz. box of cereal is now 14 ounces but costs the same as the older 16 oz. box size. Then the price increases aren't always as immediately obvious. As a side note, this is something Wal-Mart has done for years as a marketing technique. Wal-Mart is large enough to have packaging created specifically for them. Often, their prices seem much lower but when you compare the packaging size with other stores, you are really buying a slightly smaller package.