🔄 Inflationary Pressures Are Not Evenly Distributed

Some categories of products and services have increased in price more drastically than others, and there are even examples of price reductions.

In **Serbia**, food was on average 3.5% more expensive at the end of 2024 than a year earlier, which represents a significant slowdown after double-digit jumps the previous year.

However, within that category, significant price increases were still observed for individual products: e.g., the sweets and sweeteners group (sugar, jam, honey, chocolate) increased by 14%, edible oils and fats by 10.4%, fruit by 9.9%, and coffee, tea, and cocoa by about 8.5%.

Lower food inflation is partly a consequence of the stabilization or drop in prices of previously overpriced items – for example, fresh vegetables, which at one point in 2024 recorded a year-on-year price decrease.

On the other hand, essential foodstuffs in the surrounding region are still becoming more expensive, with food and non-alcoholic beverages in **BiH** at the end of 2024 being almost 5% more expensive than a year before (non-alcoholic beverages alone **+13.6%**).

At the same time, some non-food items recorded stagnation or price reductions – e.g., in **BiH**, clothing and footwear became 7.9% cheaper, and transport costs fell by **6.6%** annually (October 2024), thanks to the calming of fuel prices and other inputs.

Service price increases mostly surpassed goods inflation. In **Serbia**, prices for hospitality and recreation services grew strongly during 2024 – holiday package arrangements increased by **~15%**, and recreation services by **~11.5%**. Services in hair and beauty salons are about 13% more expensive compared to the previous year, showing that the beauty sector is not immune to inflation either.

Also, continued price growth is evident in **healthcare** – medical services in Serbia at the end of 2024 were 14.6% more expensive than a year earlier.

Conversely, administratively controlled energy prices softened the overall cost of living index: the price of electricity for households remained frozen throughout 2024, gas increased by a minimal **0.5%**, while district heating increased by **~7%**.

Interestingly, the price of firewood (solid fuels) in Serbia at the end of 2024 was 5.4% lower than a year before, after a huge jump during the 2022 energy crisis.

Such differences across sectors also affect how consumers adapt – **most savings are made precisely where price increases were highest**.

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🤔 How Consumers Change Behavior Due to Inflation

Changes in Buyer Habits: Faced with higher prices, consumers in Serbia and the region adjust their purchasing habits to “protect” the household budget. Research shows that households first give up non-essential products – snacks, sweets, and (alcoholic) beverages – because these categories have increased significantly in price.

According to GfK Household Panel data for Serbia, during the inflation wave, citizens most reduced the purchase of non-alcoholic and alcoholic beverages, followed by dried meat and dairy products, and even basic foodstuffs like sugar, salt, and flour.

In other words, savings are being made on both luxury and essential products – illustrating the seriousness of the impact on purchasing power.

Consumer strategies differ by category: for necessary groceries (e.g., fresh meat), buyers more often seek out discounts or reduce the frequency of purchase, while they will simply postpone or completely avoid buying less essential items (like frozen food or expensive delicacies).

Data shows that during the inflationary crisis, there was a general trend of a reduction in consumption across the breadth of the assortment. Of about 100 food and beverage categories tracked by the GfK panel, as many as two-thirds recorded a drop in the number of buyers, and slightly more than half also saw a drop in the purchased quantity per buyer.

So, there are fewer buyers, and those who continue to buy – are taking smaller quantities than before.

This “quantity saving” is particularly pronounced in basic foodstuffs: the turnover of sugar and salt dropped the most, indicating that consumers are reducing the consumption of even the most basic items.

At the same time, a shift to cheaper store brands and promotional products has been observed. Retailers confirm that buyers today follow promotions much more and reach for store-brand items, which they perceive as a more favorable alternative to branded products.

Quality and brand are still important – consumers do not necessarily see cheaper products as inferior, but as a better value-for-money ratio. However, in categories where big brands are dominant, buyers will sooner reduce the quantity they buy than completely switch to an unknown or cheaper brand.

This combination of behavior – **switching to more favorable options while simultaneously reducing overall consumption** – is a direct response by consumers to the decline in purchasing power caused by inflation.

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🚀 Business Responses to Inflation: “Hidden” Price Increases and Other Phenomena

Faced with rising costs and more sensitive demand, companies have resorted to various tactics to maintain profitability – sometimes in ways that are not immediately visible in price lists.

New terms have become common in public discourse describing these variants of inflation: from the subtle reduction of packaging (**shrinkflation**), through the use of cheaper ingredients or brands (**skimpflation** and **cheapflation**), to raising prices beyond justified costs (**greedflation** and **excuseflation**). The following explains these terms and how they manifest in market practice.

🔹 Shrinkflation: less product for the same money

Shrinkflation denotes the phenomenon where the packaging remains the same, but the net quantity of the product is reduced, often with an unchanged or even higher price. This “masks” the price increase – the consumer gets less product for the same amount of money, even though the price list on the shelf may not show a change.

This phenomenon is increasingly present here: manufacturers, for example, have started offering chocolate bars of 90g instead of the standard 100g, yogurt cups of 180g instead of 200g, or bags of chips filled with a larger proportion of air. Such examples have become common both globally and here – “more empty space in a bag of chips” is practically synonymous with shrinkflation today.

The reason companies resort to this tactic is simple: reducing the weight is less unpopular than a direct price increase and carries a lower risk of losing customers.

Although customers may not immediately notice that the packaging is lighter, the effect on their wallet is the same – the price per unit of measure increases identically as if the product’s price had gone up.

Consumer organizations warn that defense is difficult, as manufacturers formally fulfill the obligation to declare the new net weight, and it is up to consumers to read the fine print. That is why it is important to pay attention to the price per kilogram/liter as the best indicator of value, as shelves are increasingly full of “lighter” packaging with the same appearance.

🔹 Skimpflation: a drop in quality instead of a price increase

While shrinkflation reduces quantity, in **skimpflation** companies reduce quality or service volume, while the price remains the same. This is an even more subtle way of adjusting to inflation – the consumer receives nominally the same product/service, but of lower quality or in a smaller volume.

Examples are found in both the manufacturing and service sectors. In the food market, this can mean using cheaper, lower-quality ingredients: a manufacturer can maintain the price of chocolate but reduce the proportion of cocoa or replace part of the cocoa butter with cheaper oils, causing quality to drop. For the consumer, the taste or nutritional value is no longer the same, even though the price has not changed.

The National Bank of Serbia cites an illustrative example – after a sharp rise in the price of cocoa beans on the world market, some products began to contain less cocoa so that manufacturers could avoid raising the price of the final product.

Similar trends have been observed in services: after the pandemic, some amusement parks reduced the number of attractions included in the basic ticket, practically offering less for the same price.

Skimpflation is dangerous because it is difficult to measure with standard economic statistics – the drop in quality is not visible in the price index.

However, consumers feel the difference in the long run, and experts warn that this practice can undermine brand trust. In the short term, skimpflation helps firms save under inflationary pressures, but in the long run, it can damage reputation and drive away loyal customers if they realize they are getting less value for the same money.

🔹 Cheapflation: larger price increases for cheaper products

The term **cheapflation** (literally “cheap inflation”) describes the phenomenon where the prices of the cheapest brands and products rise faster than the prices of premium brands during periods of general inflation.

This phenomenon is directly related to consumer behavior: in conditions of rising prices, many switch to cheaper items, which increases demand for them.

At the same time, food and other basic necessities have low price elasticity – people buy them despite price increases – so manufacturers more easily pass rising costs to retail prices.

The combination of increased demand and less consumer resistance leads to discount and “budget” products increasing in price faster than more expensive alternatives.

The National Bank of Serbia confirmed the presence of cheapflation in the domestic market through analysis: they tracked the prices of 58 food products from the beginning of 2022 to the end of 2024 and found that the cheapest brands increased by about 40%, while the most expensive brands in the same category increased by **~35%**.

In other words, customers who switched to a cheaper store brand may have faced a proportionally greater price increase than if they had stayed with the more expensive brand.

The NBS explains that cheapflation also results from substitution – when consumers massively switch from more expensive to cheaper products, manufacturers and retailers gain room to raise the prices of those cheaper ones higher than usual.

Also, market competition imperfections contribute to increased costs (raw materials, energy, labor) being passed on to final prices more easily and quickly.

Cheapflation is particularly worrying from a social perspective, as it hits those with lower purchasing power the hardest – the very people whose reliance on these products as a last affordable option means they face the steepest price increases.

🔹 Greedflation and Excuseflation: when margins dictate prices

In addition to hidden price increases and variation among brands, the inflationary period has brought about debates on the role of business margins and “greed” in pricing.

**Greed inflation** (or **greedflation**) refers to the idea that in the post-pandemic inflation, firms took advantage of the situation to increase their profit margins, further accelerating price growth.

Proponents of this view point out that some manufacturers and retailers used the general increase in input costs as justification to raise prices more than they had to, aiming to boost their own earnings. Companies in many sectors used their market power to “fully pass on inflationary pressures to consumers” and even add a little extra, maintaining or increasing profit rates.

Relatedly, the term “excuseflation” has appeared in the economic vocabulary, referring to the practice of using inflation as an excuse – companies publicly blame higher costs, but actually raise prices beyond the justified level.

The existence of these phenomena is debated globally: some analyses by the US Fed, ECB, and IMF have indicated that “greed inflation” is real in the US and the Eurozone, meaning that corporate margins contributed to the acceleration of inflation.

Indications of such trends exist in the domestic market as well. The National Bank of Serbia has repeatedly warned large retail chains not to misuse inflation to increase margins. Governor Jorgovanka Tabaković emphasized in mid-2023 that “ever-increasing retail trade margins slowed the drop in inflation in Serbia,” calling on traders to reduce margins so that inflation could return to target corridors faster. An NBS analysis showed that the five largest retail chains increased their margins by as much as 36% in 2022 compared to 2019, suggesting that consumers bore a portion of the price increases while retailers maintained high profits.

Only at the end of 2024 did the Government of Serbia join the NBS in criticizing retailers for high margins, introducing temporary price controls for certain key products.

However, the sustainability of such measures is limited – long-term, competition and productivity are what should curb “greed” in pricing.

For consumers, the lesson of greedflation and excuseflation is to always be skeptical: is every price increase truly justified by rising costs, or are companies testing how much the market can bear? Inflationary times, clearly, test not only household budgets but also business ethics.

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📊 Practical Examples: Inflation from a Business Design Perspective

Through the mentioned phenomena, it is clear how business strategies are designed in response to inflation.

The economy already provides a wealth of illustrations: food manufacturers reduced packaging of certain products instead of raising prices, retail chains introduced entire lines of cheap store brands that then became proportionally more expensive, and service providers from tourism to telecommunications “hid” price increases by narrowing their offer.

Examples of service rationalization were recorded in the transport and tourism sectors: certain bus routes reduced departures so as not to touch ticket prices, hotel accommodations introduced charges for some extra amenities that were previously free, etc.

All of these are manifestations of inflation that do not encompass only the nominal rise in prices, but also changes in the very design of the offer.

From a business design perspective, inflation is a test of adaptability – companies must balance between preserving profitability and retaining customers.

Innovation in the offer becomes key: some launched “economy” product lines of smaller volume or lower quality for sensitive buyers, others devised new promotions and loyalty programs to mitigate the perception of price increases.

In all of this, **transparency toward consumers suffers** – the terminology like shrinkflation and skimpflation emerged precisely because consumers felt the consequences without being explicitly warned about the changes.

Reliable data and authentic examples like those cited help uncover these phenomena. For businesses, however, they can be a legitimate short-term solution: smaller packaging or lower quality can maintain sales during a time when a direct price increase would repel customers.

💥 Inflation • The Quiet “War” Behind the Numbers

Inflation in Serbia and the region is gradually calming down in statistics, but behind the numbers, a quiet “war” of adjustment is taking place.

While central banks and governments strive to curb price growth with macroeconomic measures, at the micro level, consumers and businesses make daily decisions on how to minimize damage – whether it is giving up a favorite snack, choosing a cheaper brand, or redesigning a product.

Terms such as cheapflation, greedflation, and shrinkflation have entered the mainstream because they hit the very essence of that experience.

Understanding these trends from a business design perspective can help companies find more sustainable ways to adapt (which will not erode customer trust long-term), and consumers to be more aware of what they get for their money.

Inflation, in short, is not just a number – it is the cost of market evolution to which we all must pay attention.

Literature: Relevant data were collected from official statistics (SORS, central banks) and reports from media/portals: N1, Danas, Nova Ekonomija, Biznis.rs, Bloomberg Adria, Euronews BiH, HRT, Xinhua, and others.

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🔥 Nebojša @ Skenderovic Consultants
Business design digital agency

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