From swelling prices to shrinking sizes: evaluating the ripple effects of inflation and shrinkflation on the economic growth of BIPS countries

ABSTRACT

This paper pioneers constructing a shrinkflation variable from the inflation rate function and integrates it into a model to assess its influence on economic growth. It also explores the changing cause-and-effect relationship between economic growth, inflation, and shrinkflation. The findings indicate that shrinkflation’s influence on economic growth parallels that of natural inflation, with both exerting a significant negative impact on growth. Hence, the effect of shrinkflation on growth mirrors that of natural inflation, akin to how words imitate natural sounds, as proposed by the bow wow theory. Furthermore, the findings show that both inflation and shrinkflation have a significant predictive effect on economic growth over time, and that causal spill-over varies across BIPS countries. Thus, the economic uncertainty in BIPS nations during the study period was partly due to inflationary conditions and partly due to shrinking commodity sizes.

KEYWORDS:

• Economic growth
• inflation
• shrinkflation
• dynamic estimation
• time-varying causality

JEL CLASSIFICATION:

• A10
• E31
• E60
• E64

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. We summed the data for each factor across all nations in order to analyse the time-varying causation among our variables of interest.

2. In these models, x and y at time t have an impact on both x and y at time t + 1.

3. We have not reported the results of dynamic random effects model for the sake of brevity.

4. On account of mounting inflation, the BIPS market, like the US market, may see quantity reductions for everything from Gatorade to toilet paper.

5. We merely summarized the findings and causation graphs for shrinkflation, inflation, and economic growth for the sake of conciseness. However, results/graphs for other variables are accessible upon request.

Additional information

Notes on contributors

Mudaser Ahad Bhat

Mudaser Ahad Bhat obtained his MPhil/PhD in Economics from the Central University of Kashmir. Currently, he works as an Assistant Professor in the Department of Higher Education, Jammu and Kashmir. Prior to this role, he served as Assistant Professor at CHRIST University Lavasa-Pune. He has demonstrated his academic prowess by successfully passing the NET, SET and the JRF Test. His scholarly contributions are extensive, with several published papers in prestigious journals listed in the UGC Care and indexed by Web of Science/Scopus. His research interests span various areas within economics, including international economics, macroeconomics, development economics and econometrics.

Farhana Wani

Farhana Wani holds an MPhil in economics from the Central University of Kashmir and is presently engaged in pursuing her PhD in Economics at the same institution. Farhana has successfully cleared the NET. Additionally, she boasts multiple published papers featured in different academic journals.

Tosib Alam

Tosib Alam obtained his MPhil/PhD in Economics from the Aligarh Muslim University, Aligarh. Currently, he holds the position of Assistant Professor at Central University of Kashmir. Earlier, he was associated with ICSSR New Delhi and Giri Institute of Development Studies, Lucknow and has more than 5 years of research experience.

Amir Mohammad Wani

Amir Mohammad Wani is pursuing his PhD in sociology from the University of Kashmir. He has successfully cleared the NET and JRF Test. Additionally, he has numerous published papers that have been showcased in various academic journals.