Harris targets price gouging. Will that solve food inflation?

Although inflation has slowed over the past year, it remains a top concern for most voters — high food prices are one of the most visible stresses in daily life for many Americans.

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

“This is the biggest political issue in the campaign this fall,” said Timothy Richards, an economist at Arizona State University. The pace of price increases has slowed significantly, but “the biggest complaint about the Biden administration is inflation,” he said.

Grocery retailers seem like the obvious targets for blame for high-priced receipts. Federal agencies can focus on and pursue specific cases of unfair business practices. But economists say the reasons behind higher prices are multifaceted and often lie deeper in the supply chain, several steps ahead of the public-facing grocery store where the card is swiped.

Although inflation has slowed over the past year, It remains a primary consideration For most voters, high grocery costs are one of the most visible stressors in the daily lives of many Americans.

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

“This is the biggest political issue in this fall’s campaign.” Timothy Richardseconomist at Arizona State University. He said: “By far, the biggest complaint about the Biden administration is inflation” because inflation is abnormal for most young people.

Vice President Harris also pledged to address the cost of raising children by expanding tax credits for families with new children. On the housing front, she pledged to boost housing construction and promote Legislation to curb rent increases and provides down payment assistance to first-time homebuyers.

Food prices have become a focus of Republican presidential candidate Donald Trump’s campaign this year. Using groceries as props The day before Ms. Harris gave her speech.

On August 1, Federal Trade Commission (FTC) Chairman Lina Khan Announce The investigation into high food prices “aims to explore how large supermarket chains use high prices to extract profits from ordinary Americans at the checkout counter.”

Grocery retailers seem like the obvious target of blame for sky-high bills. But economists say the reasons behind higher prices are multifaceted — and often lie deeper in the supply chain, several steps ahead of the public-facing grocery store where the card is swiped.

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

Between the time President Biden took office and July of this year, the price of “food at home” — basically, grocery store items — rose 21%. That’s a dramatic shift for Americans accustomed to slow change. Prices in the same category tracked by the Bureau of Labor Statistics rose just 2.7% during the first three years of the previous president’s term, before the COVID-19 pandemic.

After surging during and after the pandemic, inflation is set to slow and normalize in 2023. As of July, food inflation was running at an annualized rate of 2.2% (“food at home” inflation was half that).

Dr. Richards noted that the Fed’s goal is to keep annual inflation for the overall economy around 2%. By that measure, food inflation is “almost back to normal.”

What’s the reason behind high food prices?

Well, the answer may not be satisfactory. No evil corporation can prevent food prices from returning to the levels consumers remember from five years ago.

Supply chain disruptions caused by the pandemic are one of the reasons for this. An important factor is the rise in energy and fertilizer prices, which have risen sharply after the outbreak of the Russian-Ukrainian war.

Inflation is partly a global phenomenon, but it is also heavily influenced by central bank policy. Many economists say the Federal Reserve kept the money supply too large and too loose for too long, as inflationary pressures built up in the economy. They also say Congress and the White House played a role, for example by passing legislation that pumped pandemic relief money into the economy, spurring demand for goods and services (which can lead to higher prices).

During the epidemic, the labor supply was also relatively tight.

“Labor costs … are a major factor, especially in the food industry,” he said. Sean Cashan economist at Tufts University.

This can be traced back to the farm and food processing industry and continues through trucking all the way to retail stores.

“These industries are often very labour-intensive – a lot of the supply chain is – so higher wages mean higher production costs, which means higher prices. That’s the wage inflation spiral,” he said. “Your salary going up is good for you, but it’s a problem when prices go up because other people are getting paid more too.”

Why are food prices so high?

Dr Richards explained that inflation is often misunderstood as the level of prices, when in fact it is the rate at which prices are rising. So when inflation cools it does not mean prices are falling.

“We don’t want price levels to fall,” he added. “If prices do start to fall, that’s probably the worst thing that can happen to the economy,” which typically coincides with a deep recession and a collapse in the supply of credit.

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

The best way to ease inflation is: wages must keep up. It has been happening slowlyBut not all workers advance at the same rate.

How much profit do grocery stores actually make?

Some of the most prominent consumer expenditures — food and gasoline — are also sectors with lower profit margins.

Dr Richards said the average profit margin for the largest food retailers was about 2.5 per cent, similar to that of petrol stations.

Any business needs a certain amount of profit, otherwise it is likely to go out of business. Small profit margins work well when they are proportional to overall sales.

Jeffrey DorfmanEconomists at North Carolina State University said that based on the three companies’ most recent earnings reports, Albertsons’ profits were 1%, Kroger’s were 2% and Costco’s were 2.9%.

“Walmart doesn’t sell groceries separately from other merchandise, and they only make 3 percent of the entire store,” he added. “So none of the big grocery chains are doing anything that could be called price gouging or excessive profits.”

Food manufacturers typically have higher profit margins. PepsiCo, the maker of Frito-Lay, Quaker, Doritos and Gatorade, has a profit margin of 13%, higher than some competitors. But Dr. Dorfman said PepsiCo’s profit margins were far from “ridiculous” and definitely did not represent price gouging.

So, will banning price gouging do much?

Federal agencies can monitor 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 a monopoly.

The grocery pricing proposal from the Harris campaign would require the commission to penalize companies that gouged prices. Ms. Harris specifically targeted the lack of competition in the meatpacking industry.

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