The Harris campaign team announced a strategy to combat price gouging on food and groceries – Copyright AFP ANGELA WEISS
Economists and analysts are criticizing Kamala Harris’ price gouging. They say it is an uncompetitive proposal that could ultimately harm US consumers rather than help them.
Harris, the Democratic presidential candidate, announced the measure last week as part of a series of populist proposals that include a $6,000-a-year tax credit for families with newborns and a $10,000 tax credit for first-time home buyers.
If elected president, Harris will work with Congress to advance “the first nationwide ban on price gouging on food and groceries,” her campaign said in a statement.
The aim of the proposals is to establish “clear rules of the game” to prevent large companies from making “excessive” profits from food and groceries. In addition, the powers of the federal and state governments to punish violations of the rules are to be strengthened.
While the price-gouging plans have resonated with the Democratic base, they have sparked strong reactions from Republican presidential candidate Donald Trump, who is running against Harris in November’s election.
“Kamala will impose Soviet-style price controls,” he wrote in a social media post a day after the proposals were released.
Supporters of the policy say it has been misrepresented and misunderstood.
“When there is more concentration in an industry, we see much larger increases in profit margins,” U.S. Senator Elizabeth Warren said in an interview with CNBC on Friday.
The Harris campaign did not respond to a request for comment. However, several US media outlets, including the Washington Post, reported that the Harris campaign sees the measure as an attempt to raise existing state regulations against price gouging to the federal level.
– What price gouging? –
A surge in global inflation at the end of the Covid-19 pandemic contributed to a sharp increase in the cost of everyday items in the United States.
Consumer inflation has slowed dramatically since peaking at over nine percent in 2022. But since Joe Biden took office, Americans are still struggling with overall price increases of just over 20 percent, according to the U.S. Department of Labor.
However, “only a very small part” of this increase was due to price gouging, Ryan Sweet, chief US economist at Oxford Economics, told AFP.
Instead, Sweet points to a supply shock caused by the pandemic, as well as increased demand for goods and services, partly boosted by generous government support for households during the pandemic.
“This profiteering shifts the blame from the Biden administration, of which Harris was a part, to the corporations,” said Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.
“It’s a pretty successful political argument,” he told AFP. “It has no economic basis.”
– “Penny business” –
The retail business is notoriously tough, with profit margins often in the low single digits – in stark contrast to higher-margin industries such as technology.
“Is there a more competitive field than retail?” Target CEO Brian Cornell asked in an interview with CNBC on Wednesday, in which he also addressed Harris’ plans to gouge prices.
“This is a penny business and a very competitive space. We offer the added value that consumers are looking for,” he added.
But for people struggling with the cost of living, this is not an easy argument to make.
“People are seeing that gasoline prices are higher than they were a few years ago, and that food prices are also going to be higher than they were a few years ago,” said Sweet of Oxford Economics.
“But we will not go back to the prices we saw before the pandemic,” he added.
The reason for this is that falling inflation does not necessarily lead to lower prices in the grocery store.
On the other hand, if wages rise faster than the rate of inflation – and this has been the case for over a year – the cost of these goods falls over time in relation to wages.
But it is a slow process.
The US Federal Reserve appears increasingly confident that it is winning its battle to bring inflation back to its long-term target of two percent.
On Friday, Fed Chairman Jerome Powell said “the time has come” to start cutting interest rates, raising expectations of a rate cut next month.
“There are clear signs that corporate pricing power is beginning to wane,” Sweet said.
“I think over time the discussion about price gouging will fade into the background as inflation returns to the Fed’s target level,” he added.
