Kamala Harris wants to challenge price gouging. It’s hard to find agreement on what it is

Democratic presidential candidate Kamala Harris this week released her most detailed economic plan yet, vowing to fight price gouging to keep voters’ grocery costs in check.

The vice president first teased the federal ban in mid-August, when former President Donald Trump attacked the plan as “Soviet-style” price controls. Harris announced the details Wednesday as part of her 82-page economic plan, but it remains unclear what increases her administration would consider illegal “price gouging.”

“This bill establishes rules to make it clear that large corporations cannot unfairly exploit consumers and reap excessive corporate profits on food and groceries during a crisis,” Harris said. Walz’s campaign said in a policy pitch released. 6 weeks before election day.

As high grocery bills plague Americans and retailers look forward to a deal-hunting holiday season, the presidential election will shed light on price hikes and who is to blame for them. This is the central theme of the war. Harris and Trump each offer their own solutions to combating inflation as Americans continue to pay more for food, energy, housing and other daily living expenses.

According to the Bureau of Labor Statistics, household grocery prices rose by just 1% last year. But food is still 25% more expensive than it was in August 2019, before supply chain disruptions and inflation sent prices soaring.

Voters will ultimately consider what role government leaders should play in setting prices for businesses. Republicans generally support economic deregulation, but President Trump has suggested limiting food imports as a way to lower food prices. Economists warn that this strategy is likely to backfire.

Halting price increases is a popular idea among voters. An Economist/YouGov poll conducted Aug. 25-27 found that 60% of U.S. adults support capping food and grocery price increases.

Still, Ms. Harris will face a tough road getting her price gouging bill through Congress, and it’s not yet clear how the price gouging crackdown will work in practice.

One of the challenges with accusing a company of price gouging and promising to address it is that the term means different things to different people. Rakeen Mahboud, chief economist at the progressive think tank Groundwork Collaborative, said this is typically defined in two main ways.

economist and lawyer She said she uses a technical definition that refers to when companies raise prices during emergencies, such as doubling the price of bottled water during a hurricane. Thirty-seven US states already have laws prohibiting price gouging during emergencies.

But some consumers and politicians are embracing a looser definition, one in which companies charge unreasonable prices simply because a brand or retailer has market power, Maboud said. Ta.

As the prices of food and other goods soared in 2021 and 2022, the popular explanation of “greedflation” emerged. The idea is that companies have raised the prices of their products without offering customers larger quantities, new flavors, etc., exacerbating inflation. The once fringe theory has gained mainstream support, including a Kansas City Fed study that found markups contribute “substantially” to inflation.

But many economists, and Fed Chairman Jerome Powell, don’t believe that corporate profits are the cause of inflation. Rather, they attribute the spike in prices to a variety of other factors, including a tight labor market and supply chain issues.

And regardless of what that term means, the companies involved say they are not to blame for soaring food prices.

“It’s important to get the economic facts right and avoid political rhetoric,” Sarah Gallo, senior vice president of product policy and federal affairs at the Consumer Brands Association, said in an August statement. “The reality is that there are complex economic factors at play…The industry is bound by the Federal Trade Commission’s consumer protection mandate and the Department of Justice’s well-established laws prohibiting price gouging and unfair trade practices. I support it.”

some retail giants target CEO Brian Cornell has also pushed back against accusations of price gouging against the industry. He said in an interview on CNBC’s “Squawk Box” in August that if retailers raise their prices too much, they lose customers to competitors.

But Jaronne Martis, director of consumer research at LSEG, said there were some “red flags” that should get politicians’ attention. She analyzed the gross profit margins of a variety of companies, including grocery stores, consumer goods companies, and restaurants, before, during, and in the years after the coronavirus pandemic. This metric measures a company’s net sales as a percentage of its costs.

Some of those companies include; hook, procter and gamble and domino pizzahas a higher gross profit margin than before the pandemic. He said this could reflect company-specific movements, such as Domino’s increasing pizza sales or Kroger’s customers gravitating toward more profitable pizzas. Private label brand.

Antitrust allegations over Kroger’s $24.6 billion acquisition of supermarket chain Albertsons have also increased scrutiny of the company’s pricing practices. The Federal Trade Commission has sought to block the merger in court, and during the trial, Kroger’s price-setting chief testified that Kroger unnecessarily raised the prices of milk and eggs due to higher costs.

In a statement, Kroger called accusations of price gouging “misleading” and said nearly all of its grocery store operating costs, including labor and transportation costs, have increased significantly since 2020. .

“We work tirelessly to keep our prices as low as possible for our customers in a highly competitive industry,” it said in a statement.

Meanwhile, Arun Sundaram, an equity research analyst at CFRA Research who covers grocery stores and consumer goods companies, said he sees no evidence of price gouging in the grocery industry. He said the price increase comes from companies passing on some of their higher production costs to customers.

He said rising profit margins can be driven by a variety of factors and are not necessarily a sign of corporate greed or price gouging. Prices may rise as a company improves its management efficiency or changes the mix of products it sells.

Margins can also reflect the power of a brand and consumers’ willingness to tolerate significant price increases on fashionable or popular items, such as unique sneakers or designer dresses.

But Sundaram said there may be some merit to the discussion in the meat packaging industry, which is facing several price-fixing lawsuits. For example, JBS-owned Pilgrim’s Pride Corporation, one of the country’s largest chicken producers, pleaded guilty in 2021 to conspiring to fix chicken prices and pass costs on to consumers.

Even if Ms. Harris does not pass the price gouging bill, resistance to high costs is already beginning to affect prices. So far, the pushback from shoppers and grocers has been a big game changer.

Daily necessities companies, etc. pepsico and campbell soup We’ve seen sales volumes decline as consumers choose cheaper alternatives or eat fewer snacks. And as inflation has slowed, most companies have reduced the size and frequency of price hikes.

“There are shoppers who have looked at seven or eight items. [price hikes] After a year, you know they’re not happy with it,” said Steve Zurek, vice president of thought leadership at market research firm NielsenIQ.

walmartThe company, the nation’s top retailer and grocery store by annual sales, said it is cracking down on price gouging by its vendors. Chief Executive Officer Doug McMillon said on an earnings call last month that inflation has increased further in the dry grocery and packaged food aisles. He said major retailers are asking suppliers to stabilize or reduce prices.

“While upward pressures have subsided, some companies are still talking about rising costs. We believe we need to lower prices and are aggressively fighting back,” he said on a conference call. .

Zurek said many food companies are reinstating discounts in response to consumer dissatisfaction and weak sales.

During the pandemic, many manufacturers stopped offering sales as they struggled to keep shelves stocked. Customers were already stocking up on pantries and stocking up on hand sanitizer and toilet paper, so there was no need to increase demand. Supply chain issues compounded the problem, and even though people didn’t need to buy more goods, inflation increased sales.

This dynamic is now reversed in many companies. And it’s not just food companies offering deals.

target Lower prices on thousands of items. walmart Short-term trading of certain products increased, especially in the grocery sector. And this week, Party City announced price cuts on more than 2,000 items, including balloons and candy, as shoppers gear up for Halloween.

Still, shoppers are unlikely to see grocery store prices slashed across the board, Zurek said.

“From an economic perspective, I never want to talk about deflation. Deflation is just as bad as inflation,” he told CNBC.

However, there are several examples of companies reversing price increases. Robert Crane, J.M. Smucker’s vice president of sales and commercialization, said the company is offering “product relief” to consumers wherever possible, including with coffee brands such as Folgers and Café Bustello. He said that The profit margin of Smucker’s coffee division in 2024 was 28.1%, down from 31.9% in 2019.

However, Smucker plans to raise coffee prices for the second time this year in early October in response to rising commodity prices.

To justify these decisions for top retailers, Crane said the company is bringing in experts who can explain the green coffee product market.

“We reviewed the charts, talked about the outlook, talked about whether it was because of the weather, whether it was due to speculation, what could be the cause,” Crane said.

But that doesn’t mean stopping or slowing price increases will be easy, CFRA’s Sundaram said.

He said there are a number of factors that cause inflation, including rising supply chain costs, rising wages due to labor shortages, and adverse weather conditions in regions of the world that produce foods such as corn, soybeans and cocoa. He is skeptical that either administration can bring about a quick solution.

“It was a complex set of factors that caused this, so it’s probably going to be a complex set of factors that resolves this,” he said.