Harris urges a ban on price gouging: Will that keep food inflation down?

Although inflation has slowed over the past year, it is still top of mind for most voters – with high grocery costs one of the most visible pressures on many Americans’ everyday lives.

That’s a challenge not just for consumers but also for Vice President Kamala Harris as she runs for president on the Biden-Harris track record. It explains why her first major policy speech as a 2024 candidate, on Friday in North Carolina, called for a ban on grocery store price gouging and other steps to tackle inflation in the U.S. economy.

“This is the biggest political issue of the campaign this fall,” says Timothy Richards, an economist at Arizona State University. “Up until now, the biggest complaint with the Biden administration has been inflation” because, for most younger adults, inflation is out of the norm, he says.

Vice President Harris also pledged to address the cost of parenting with an expanded tax credit for families with new children. And on housing, she promised to boost homebuilding and promote legislation to curb rent hikes and give down-payment assistance to first-time homebuyers. 

Food prices are already a campaign-year focus, with Republican presidential nominee Donald Trump wielding grocery products as props the day before Ms. Harris spoke.

On Aug. 1, Federal Trade Commission (FTC) Chair Lina Khan announced an inquiry into high food prices “​​in order to probe the tactics that big grocery chains use to hike prices and extract profits from everyday Americans at the checkout counter.”

Grocery retailers may seem like the natural ones to look at, for blame regarding pricey receipts. But economists say the reasons behind price hikes are multifaceted – and generally lie further back in the supply chain, several steps before the public-facing grocery stores where you swipe your card.

How much have food prices risen in the past four years?

Prices for “food at home” (essentially grocery store items) rose 21% between when President Joe Biden took office and this July. That’s a drastic shift for Americans accustomed to much slower changes. The same category, as tracked by the U.S. Bureau of Labor Statistics, saw prices rise only 2.7% during the first three years of the prior presidential term, before the COVID-19 pandemic started.

After its surge during the pandemic and beyond, inflation decelerated toward normal as 2023 went on. As of July, food inflation is running at a 2.2% annualized rate (and “food at home” at half that rate). 

Dr. Richards notes that the Federal Reserve aims to hold inflation at about 2% a year for the economy in general. Judging by that yardstick, food inflation is “just about back to normal.” 

What’s behind the high food prices?

Well, the answer may not be satisfying. There’s no one evil corporation to catch in order to send food prices back to what consumers remember from five years ago. 

Pandemic supply chain disruptions played a role. One big driver was rising energy and fertilizer prices, which jumped amid the breakout of the Russia-Ukraine war. 

Inflation is to some extent a worldwide phenomenon, but also heavily influenced by individual nations’ central bank policies. Many economists say the Federal Reserve kept money-supply spigots too loose, for too long, as inflationary pressures gathered in the economy. They also say Congress and the White House played a role, such as with legislation to pump pandemic relief into the economy – boosting demand for goods and services (which can drive prices up).

The pandemic era also saw tight labor supply.

“The cost of labor ... is a major factor, especially in food industries,” says Sean Cash, an economist at Tufts University. 

This goes back to farms and food-processing industries, and carries on through trucking and all the way to the retail store.

“These are often labor-intensive – many parts of that supply chain are – so higher wages means higher cost of production, means higher prices. And this is that wage inflation spiral,” he says. “More money in your paycheck is a good thing for you, but higher prices because everyone else is getting paid more as well is a problem.”

Why have food prices remained high?

Inflation is often misunderstood as the price level, whereas it’s the rate of increase in prices, Dr. Richards explains. So when inflation cools down, it doesn’t mean that prices fall.

“We don’t want price levels to go down,” he adds. “If prices did start to fall, that’s probably the worst thing that can happen to an economy,” often coinciding with deep recessions and collapsing supply of credit.

“We don’t want deflation. We just want lower inflation,” he says.

The best way to allay inflation’s sting: Wages must catch up. That has been slowly happening, but not at an even pace for all workers.

How much of a profit are grocery stores actually making?

Some of the most salient consumer expenses – food and gas – are also industries with low profit margins.  

Averaged across the biggest food retailers, the profit margin is about 2.5%, Dr. Richards says, similar to that for gas stations. 

Any business needs some profit, or it will likely close down. And a small profit margin works, when spread over a high volume of overall sales.

Jeffrey Dorfman, an economist at North Carolina State University, says that based on their latest earnings reports, Albertsons made a 1% profit, Kroger 2%, and Costco 2.9%.

“Walmart does not break out their groceries separate from the rest of their sales, and they only make 3% on the whole store,” he adds. “So none of the big grocery chains are making anything that could be called price gouging or extraordinary profits or anything like that.”

Food manufacturers often have higher margins. PepsiCo, the manufacturer of Frito-Lay, Quaker, Doritos, Gatorade, and more, makes a 13% profit margin, higher than some rivals. But Dr. Dorfman says Pepsi’s margin is far from “obscene” and certainly wouldn’t suggest price gouging.

So, can a ban on price gouging achieve much?

Federal agencies can watch for – and pursue – specific instances of unfair business practices. The FTC is already a key player in such efforts. For example, the FTC recently sued to block the Kroger-Albertsons merger in an attempt to prevent monopolization.

The Harris campaign’s grocery pricing proposal would instruct the commission to penalize corporations that jack up prices. Ms. Harris is targeting a lack of competition in the meatpacking industry, in particular.

But economists emphasize that, for the most part, prices for food and other things are largely beyond the agency’s control.