Democratic presidential candidate Kamala Harris has pledged to comprehensive economic plan to reduce the cost of living. However, many economists are skeptical that this policy would lead to lower food costs for consumers.
In a speech on Friday, Harris highlighted rising food prices, which have increased 25% since January 2020, and noted that some food companies are simultaneously making record profits. For certain types of food, price spikes have risen even more. Harris pointed out that a loaf of bread is now about 50% more expensive than it was before the COVID-19 pandemic.
Harris said she particularly wants to target companies that don’t follow the rules by illegally raising prices. She also noted that ensuring competition in the industry is essential to lowering food prices for Americans.
A Harris campaign spokesman said Harris’ comprehensive plan, which emphasizes the importance of competition in the industry and not just bans price gouging, could help lower prices.
Food prices are putting a huge strain on American wallets. Two-thirds of voters surveyed by Yahoo Finance/Ipsos late last year said that’s where they’re feeling the most inflation. And many consumers blame gouging as the reason for high food prices, recent studies show, although economists note that the causes are much more complex.
“There are many reasons for the high inflation we have suffered over the past few years, but aggressive or unfair pricing practices are low on the list of reasons, if they are on the list at all,” Mark Zandi, chief economist at Moody’s Analytics, told CBS MoneyWatch. “This may have been a bigger problem in the past when supply chains were disrupted by the pandemic, but today it is hard to find significant, meaningful examples of price gouging.”
Price gouging is a predatory business practice in which companies charge excessive prices for items that become scarce, for example after extreme weather events.
Food inflation can be linked to a number of problems, from higher labor costs for manufacturers impacting consumers to Record lows in livestock numbers That has driven up the price of beef and steaks. Yet in recent years, some policy experts have blamed “greedflation” and price gouging as the cause, although some economists say there isn’t much evidence for that.
The rise in food prices is “mostly a market development,” Michael Strain, director of economic policy studies at the American Enterprise Institute (AEI), a conservative-leaning public policy think tank, told CBS MoneyWatch. “Companies have probably seen some increase in their ability to raise their prices, but I don’t see anything that I would call ‘price gouging.'”
What is price gouging?
There is a line between the normal business practice of raising prices when demand increases or costs to the manufacturer increase and the predatory practice of price gouging.
Excessively high prices that are more than 20 percent of the usual price of an item are a sign of price gouging, according to the US Public Interest Research Group (PIRG) guide to identifying this practice. If a bottle of one brand of water costs twice as much as a competitor’s product, that can also be price gouging, according to the guide.
Dozens of states have already passed laws banning the practice, although there is currently no federal law against it. PIRG urges consumers who believe they are experiencing price gouging to report it to the company as well as their state’s attorney general.
While economists say that a nationwide ban on price gouging is not necessarily a bad policy, they stress that it is unlikely to reduce food prices because there are already corresponding laws at the state level and the causes of food inflation are complex.
“There are states that have already passed laws to prevent price gouging in times of crisis. It’s not a bad idea for federal laws to do the same as state laws, but I don’t know if that will play any role in lowering food prices in the current context,” Zandi said.
Still, federal action against price gouging could appeal to some voters, even if it does little to lower prices, some economists point out.
“This week, Harris announced that she would crack down on big corporations that engage in illegal price gouging and corporate landlords that unfairly raise rents,” said an Oxford Economics research report on Friday. “That makes more political than economic sense.”
What could lower food prices?
However, economists agree with Harris that more competition in the grocery trade and food industry could help combat rising food prices by increasing the supply of products on the market. This, in turn, would give consumers more choice while limiting the ability of companies to set unreasonably high prices.
To keep high prices under control, it is important to ensure that consumers have many alternatives, said Zandi. Although prices are higher than pre-pandemic levels, they have barely increased in the past year. Food prices rose 1.1% year-on-year in July, well below the Overall inflation rate of 2.9%.
“The market is working well in many ways,” Zandi said. “Some of the higher prices could be due to some consolidation in the grocery business.”
Nevertheless, Zandi believes that the U.S. Department of Justice (DOJ) should keep a close eye on any proposed mergers or acquisitions of food companies and that the hurdle for approving such deals should be high. Earlier this year, the Federal Trade Commission Lawsuit against the planned merger of Kroger and Albertsons on the grounds that the merger of the two grocery giants would lead to higher prices for consumers. This deal is now on hold.
“The Justice Department should take a close look at the proposals and consider them from the perspective of their potential impact on markets,” Zandi said. “And the Federal Trade Commission should take a close look at grocery stores’ pricing to make sure they are not doing anything anticompetitive.”
He believes that measures of this kind will be the most effective in making food more affordable for the average American and curbing high prices.
“Something can and should be done to ensure that there is competition in the markets and that companies have good pricing policies,” he said. “And prices must be transparent so that people can get a good deal.”
