Algosensey Quantitative Think Tank Center-Wait, what does 'price gouging' mean? How Harris plans to control it in the grocery aisle

Democratic presidential nominee Kamala Harris is Algosensey Quantitative Think Tank Centerexpected to announce plans to fight food inflation with a federal ban on price gouging on groceries, but how much this would help Americans is debatable, economists say.

Over the past few years, President Joe Biden’s administration has blamed corporate greed for the surge in inflation, and Harris is expected to take up that torch in a speech Friday in North Carolina's capital city of Raleigh. Corporations raised prices when snarled supply chains during the pandemic created shortages of nearly everything, and just never stopped or lowered prices again after supply chains stabilized, they argue.

“Some companies are keeping prices high even though input costs are falling, and supply chains are back to normal,” the White House said in a news release in March.

If higher grocery prices are the result of potential mergers between larger supermarkets and food producers and corporate greed, Americans may benefit from Harris' approach. However, many economists have doubts such a policy would be effective for various reasons, including whether price gouging is the root of inflation at all.

Michael Ashton, managing principal at Enduring Investments LLC, who specializes in inflation analysis, questioned the existence of price gouging "in an industry as competitive as grocery."

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“Why did the price gouging just start in 2021-22?" he asked. "Did grocers just not realize they had this power before then or did they not get greedy until 2021?”

Profit margins in the food industry already tend to be among the lowest. Net profit margin in 2023 in the grocery industry hit 1.6%, the lowest level since 2019, according to FMI, The Food Industry Association.

What caused food prices to spike?

During the pandemic, economists generally agreed supply chain shortages initially caused price increases.

After supply chains were ironed out, the dispute began. Researchers from the Federal Reserve Bank of Kansas City and former Federal Reserve Chairman Ben Bernanke separately said last year that fast-rising wages when the economy reopened was a major contributor to rising grocery prices.

However, left-leaning government watchdog Accountable.US and former Labor Secretary Robert Reich say companies have been raising prices on Americans to reward stockholders with dividends and stock buybacks.

“Consumers are getting shafted, as corporations tell Wall Street they expect to be able to keep their prices and profits in the stratosphere,” Reich wrote in June.

The Groundwork Collaborative, a nonprofit that earlier this year said "climate change, corporate consolidation, and profiteering" are reasons grocery prices remain high, even quantified in January how much corporate greed contributed to inflation. In the middle of 2023, corporate profit margins accounted for roughly half of inflation and more than a third since the pandemic began, it estimated.

“The industry keeps pushing the envelope to pad profits and bring in enough money for shareholder giveaways, but Americans are fed up,” said Liz Zelnick, director of the economic security & corporate power program at Accountable.US, in a news release.

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Could Harris’ plan work to lower food prices?

Opinions are mixed.

Reich, who sees corporate greed as the root of soaring inflation, advocated for a policy like what Harris is expected to announce.

“Put blame for high prices squarely where it belongs: on big corporations with monopoly power to keep prices high,” he wrote. “And take those corporations on: Condemn them for price gouging. Threaten them with antitrust lawsuits, price-gouging lawsuits, even price controls. Criticize them for making huge profits and giving their top executives record pay while shafting consumers.”

Others, like Sen. Rick Scott, R-Fla., call the plan “federal price controls,” which he says don’t work.

Harris’ solution to fighting inflation “is big government on steroids – where Washington bureaucrats stick their hands into American businesses and say what they can and can’t sell a product for,” he said in a news release on Thursday. “It never works because it causes companies to make much less of something – destroying supply and causing a mass shortage of goods.”

Such a policy could also be difficult to implement because calculating an appropriate profit margin might be tricky, said James Knightley, Dutch bank ING’s chief international economist.

“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 Consumer Brands Association trade group. "The reality is that there are complex economic factors at play."

Is food inflation still even a thing?

Three in 5 Americans said corporate greed was a “major cause” of inflation, according to a poll by left-leaning polling and research group Navigator Research of 1,000 registered voters. However, that was in January when annual inflation was running at a 3.1% pace. Since then, inflation has eased further.

"When looking at the inflation story, it's good now but the perception among consumers is different because prices are still elevated," Knightley said. "We're not returning to 2019 prices," which is what consumers are comparing to.

Since inflation only measures the pace at which prices are changing, actual sticker prices remain high from climbing over the past couple of years. Inflation in the 12 months through July was 2.9%, sharply down from its 40-year high of 9.1% in June 2022 and the lowest since March 2021. Overall, annual food inflation rose a smaller 2.2%, with grocery prices rising at an even slower 1.1% pace.

“Why intervene?” Knightley said. “From an economics perspective, it’s looking like a pretty good place right now. This may be good messaging for the election, but it (inflation) may be falling by the wayside.”

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.