Democratic presidential nominee Kamala Harris is vowing to enact the first federal law against price gouging from food suppliers and grocery stores as part of her wide-ranging economic plan to bring down the cost of living. But many economists say they are skeptical the policy would lead to lower food costs for consumers.
In a speech on Friday, Harris highlighted the surging cost of groceries, which have jumped 25% since January 2020, while noting that some food companies are at the same time enjoying record profits. Certain types of foods have seen even sharper spikes, with Harris pointing out a loaf of bread is now about 50% more expensive than prior to the COVID-19 pandemic.
Specifically, Harris said she wants to target businesses that aren’t “playing by the rules” by illegally hiking prices. She also noted that ensuring competition in the industry is essential to bringing down grocery costs for Americans.
A spokesperson for the Harris campaign said that Harris’ comprehensive plan, which emphasizes the importance of industry competition, and not a ban on price gouging alone, could help bring down prices.
Grocery prices are a major strain on Americans’ wallets, with two-thirds of voters polled by Yahoo Finance/Ipsos late last year saying it’s where they feel inflation hitting the hardest. And many consumers blame price gouging as a reason for high grocery prices, recent research has found, even though economists note the causes are far more complex.
“There are lots of reasons for the high inflation we’ve suffered over the past several years, but aggressive or unfair pricing practices are at bottom of list of reasons, if they’re on the list at all,” Mark Zandi, chief economist at Moody’s Analytics, told CBS MoneyWatch. “It may have been more of an issue back when supply chains were being disrupted by the pandemic, but today it’s hard to point to any significant, meaningful examples of price gouging.”
Price gouging refers to a predatory practice when businesses charge excessively high prices on items that become scarce, such as after an extreme weather event, for example.
Grocery inflation can be linked to a number of issues, from higher labor costs at manufacturers that trickle down to consumers, to record-low cattle numbers that drove up the cost of beef and steak. Still, some policy experts over the past few years have blamed “greedflation” and price gouging as a contributor, although some economists say there’s not much evidence to back that up.
The surge in food prices “is mostly a market outcome,” Michael Strain, director of economic policy studies at the American Enterprise Institute (AEI), a conservative-leaning public policy think tank, told CBS MoneyWatch. “Firms likely have seen some increase in their ability to increase the prices they charge, but I don’t see anything happening that I would describe as ‘price gouging’.”
What is price gouging?
There’s a line between the normal business practice of raising prices when demand increases or if a manufacturer is facing higher costs, versus the predatory practice of price gouging.
Extraordinarily high prices, to the tune of more than 20% of an item’s usual cost, is one sign of price gouging, according to the U.S. Public Interest Research Group (PIRG)’s guide to identifying the practice. If a bottle of water from one brand costs double the amount of a competitor’s item, that could also amount to price gouging, according to the guide.
Already, dozens of states have laws that ban the practice, although there’s currently no federal law against it. PIRG urges consumers who believe they encounter price gouging to report it to the company, as well as their state’s attorney general.
While economists say that enacting a federal price gouging ban isn’t necessarily bad policy, they stress it isn’t likely to bring down grocery prices, given there are already state laws on the books and because the causes of food inflation are complex.
“There are states that have laws in place already to stop predatory pricing when there is a crisis. For federal law to do what the state laws do is not a bad idea, but I don’t know that it will play any role in bringing down the cost of food in the current context,” Zandi said.
Still, a federal crackdown on price gouging could prove popular with some voters, even if it doesn’t move the needle much on prices, some economists noted.
“This week, Harris said that she will crack down on large corporations that engage in illegal price gouging and corporate landlords that unfairly raise rents,” Oxford Economics said in a Friday research note. “This makes more political than economic sense.”
What could bring down food prices?
However, economists agree with Harris that adding more competition to the grocery and food industries could help tackle rising food prices by adding to the supply of products on the market. That in turn would give consumers more choice while curtailing companies’ ability to set unreasonably high prices.
Ensuring that consumers have plenty of alternatives is essential to keeping a lid on high prices, Zandi noted. While prices are elevated compared to pre-pandemic levels, they’ve risen little over the past year. For instance, grocery prices rose 1.1% in July on an annual basis, far below the overall inflation rate of 2.9%.
“The market is working well in many respects,” Zandi said. “Some of the higher prices might be due to some consolidation in the grocery business.”
Even so, Zandi thinks the U.S. Department of Justice (DOJ) should keep a close eye on any proposed mergers or acquisitions of food companies, and that the bar for approving such deals should be high. Earlier this year, the Federal Trade Commission sued to block the proposed merger of Kroger and Albertsons, arguing that the combination of the two grocery giants would lead to higher prices for consumers. That deal is now on hold.
“The DOJ should look carefully at what’s proposed, and look at it through the prism of what it might mean for markets,” Zandi said. “And the Federal Trade Commission should look closely at the pricing practices of grocery stores to make sure they’re not doing anything anti-competitive.”
These types of policies, he believes, will be most effective at making groceries more affordable for everyday Americans, and taming high prices.
“Things can and should be done to make sure there is competition in the markets and businesses are following good pricing policies,” he said. “And prices need to be transparent so people can shop for a good deal.”
