- Skimpflation is a situation where firms – in response to higher costs – reduce the quality of a good/service. Skimpflation means consumers get less for the same price.
- Skimpflation is related to inflation in that rising prices and costs in the economy lead to lower living standards for consumers. The difference is that although prices do not rise directly, you would effectively have to spend more to get the same service that you did before.
Examples of Skimpflation
- Airlines reducing the number of air stewards and therefore giving consumers less service during a long haul flight.
- Phone companies reduce the number of workers in call centres so that when you ring up with a technical problem, it takes longer to get through.
- Bicycle shops no longer give free check-up of bikes a month after buying new bike because they are so busy.
- Hotels not providing waiter service, but relying on customers to do self-checkouts for breakfast and maels.
Causes of Skimpflation
- Rising prices and rising costs. If a firm faces rising costs of production, then the typical response is to increase prices. However, if market conditions are very competitive, firms may be reluctant to increase prices because they would lose market share. Therefore, they save costs by reducing the quality of the service for the product.
- Shortage of labour. In 2021, many workers have resigned from their jobs and firms have struggled to fill labour vacancies. In this climate, wages have started to rise. But, trying to keep costs down, firms have an incentive to try and make do with fewer workers. Fewer workers enable costs to remain low and avoid price increases, but the drawback is that it will lead to lower service standards.
Related concept – Shrinkflation
- Shrinkflation. Shrinkflation is a very similar concept. Shrinkflation is when firms reduce the size of the product, rather than increase the price. For example, a firm may reduce the size of a chocolate bar from 50grams to 40 grams in order to be able to keep the same price.