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Democratic presidential candidate Kamala Harris is expected to announce plans to combat food inflation through a federal ban on gouging in food prices, but economists are uncertain how much that would help Americans.
In recent years, President Joe Biden’s administration has blamed corporate greed for rising inflation, and Harris is expected to carry that torch in a speech Friday in North Carolina’s capital, Raleigh. Companies raised prices when supply chains caused shortages of almost everything during the pandemic and never stopped or lowered prices again after supply chains stabilized, they argue.
“Some companies are keeping prices high even as input costs fall and supply chains return to normal,” a White House press release said in March.
If higher food prices are the result of potential mergers between larger supermarkets and food manufacturers and corporate greed, Americans could benefit from Harris’ approach. But many economists doubt that such a policy would be effective for a variety of reasons, including whether price gouging is the cause of inflation in the first place.
Michael Ashton, managing partner of Enduring Investments LLC, which specializes in inflation analysis, questions the existence of price gouging “in an industry as competitive as grocery.”
“Why did the price gouging only start in 2021-22?” he asked. “Were grocers not prepared to have this power before, or did they only get greedy in 2021?”
Profit margins in the food industry are already among the lowest. According to FMI, the food industry association, the net profit margin in the food sector reached 1.6% in 2023, the lowest level since 2019.
What caused the rise in food prices?
During the pandemic, economists generally agreed that supply chain bottlenecks initially led to price increases.
Once supply chains were repaired, the dispute began. Researchers at the Federal Reserve Bank of Kansas City and former Federal Reserve Chairman Ben Bernanke said independently last year that rapidly rising wages after the economy reopened were a major factor in rising food prices.
However, left-leaning government watchdog Accountable.US and former U.S. Labor Secretary Robert Reich say companies have raised prices for Americans to reward shareholders with dividends and stock buybacks.
“Consumers are getting shortchanged because Wall Street corporations are telling them they expect to be able to keep their prices and profits in the stratosphere,” Reich wrote in June.
The nonprofit Groundwork Collaborative, which said earlier this year that “climate change, corporate consolidation and profiteering” were reasons food prices remained high, even quantified in January how much corporate greed has contributed to inflation. In mid-2023, corporate profit margins accounted for about half of inflation, and more than a third since the start of the pandemic, it estimated.
“The industry continues to push the boundaries to boost profits and raise enough money for shareholder giveaways, but Americans are fed up,” said Liz Zelnick, director of the Economic Security and Corporate Power program at Accountable.US, in a press release.
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Could Harris’ plan help lower food prices?
Opinions differ.
Reich, who sees corporate greed as the cause of rampant inflation, argued for policies like those Harris is expected to announce.
“Put the blame for high prices squarely where it belongs: on the big corporations with their monopoly power that keeps prices high,” he wrote. “And go after those corporations: Convict them of price gouging. Threaten them with antitrust suits, price gouging suits, even price controls. Criticize them for making huge profits and paying their top executives record salaries while ripping off consumers.”
Others, like Senator Rick Scott, R-Fla., He calls the plan “federal price controls,” which he says do not work.
Harris’ solution to fighting inflation “is strong government on steroids – where Washington bureaucrats stick their hands into American businesses and tell them what price they can and cannot sell a product at,” he said in a press release Thursday. “That never works because it causes businesses to produce much less of something – which destroys supply and creates mass shortages of goods.”
Such a policy could also prove difficult to implement because calculating an appropriate profit margin could be tricky, says James Knightley, chief international economist at Dutch bank ING.
“It’s critical that we get the economic facts right and avoid political rhetoric,” said Sarah Gallo, senior vice president of product policy and federal affairs at the trade group Consumer Brands Association. “The reality is that there are complex economic factors at play.”
Does food inflation still exist?
Three in five Americans said corporate greed is a “major cause” of inflation, according to a survey of 1,000 registered voters by the left-leaning polling and research group Navigator Research. But that was in January, when the annual inflation rate was 3.1%. Inflation has continued to fall since then.
“If you look at the inflation story, it’s good now, but the consumer perception is different because prices are still high,” Knightley said. “We’re not going back to 2019 prices,” which is what consumers are comparing against.
Because inflation only measures the pace at which prices change, actual list prices have remained high in recent years due to the increase. Inflation in the 12 months to July was 2.9%, well below its 40-year high of 9.1% in June 2022 and the lowest since March 2021. Overall, annual food inflation rose less than 2.2%, with food prices rising even more slowly at 1.1%.
“Why intervene?” asked Knightley. “From an economic perspective, things are looking pretty good right now. That may be a good sign for the election, but inflation could fall by the wayside.”
Medora Lee is a finance, markets and financial reporter for USA TODAY. Reach her at [email protected] and subscribe to our free Daily Money newsletter, which provides financial tips and business news every Monday through Friday morning.
