Kamala Harris promises to fight inflation

As she unveiled her most detailed economic plan this week, Democratic presidential candidate Kamala Harris pledged to fight price gouging to rein in voters’ grocery costs.

The vice president first mocked the federal ban in mid-August, and former President Donald Trump attacked the plan as “Soviet-style” price controls. Although Harris released more details Wednesday as part of her 82-page economic plan, it remains unclear which price increases her administration will consider illegal “price gouging.”

“This bill would set rules that make it clear that large corporations cannot unfairly exploit consumers to squander excessive corporate profits on food and groceries during a crisis,” the Harris-Waltz campaign said in a policy statement. 6 weeks before election day.

High prices, and who or what is responsible, have become a central theme of the presidential election as high grocery prices frustrate Americans and retailers anticipate a holiday season marked by deal hunting. Harris and Trump have proposed their own solutions to combat inflation as Americans continue to pay more for groceries, energy, housing and other everyday expenses.

According to the Bureau of Labor Statistics, household food prices rose only 1% last year. But groceries are still 25% more expensive than they were in August 2019, before supply chain disruptions and inflation sent prices soaring.

Voters will ultimately be concerned about what role government leaders should play in setting corporate prices. Although Republicans generally support economic deregulation, President Trump has proposed limiting food imports as a way to lower food prices. Economists have warned that this strategy could potentially backfire.

Stopping price increases is a popular idea among voters. A poll conducted by The Economist/YouGov from August 25 to 27 found that 60% of adult U.S. citizens support capping food and grocery price increases.

Still, Harris will likely have a hard time getting legislation to raise prices passed through Congress, and it’s not yet clear how cracking down on price increases will work in practice.

One of the challenges of denouncing corporate price gouging and promising to fix it is that the term means different things to different people. Rakeen Mabud, chief economist at the progressive think tank Groundwork Collaborative, said they are generally defined in two main ways.

economist and lawyer She said she uses the technical definition to refer to when a company raises prices during an emergency, such as doubling the price of bottled water during a hurricane. Thirty-seven U.S. states already have laws prohibiting price gouging during emergencies.

But some consumers and politicians have accepted a looser definition. In other words, it is the practice of companies charging unfair prices simply because that brand or retailer has market power, Mabud said.

As prices for groceries and other goods soar in 2021 and 2022, a popular explanation has emerged: ‘greed’ – the concept that companies are exacerbating inflation by raising prices for products without offering customers greater quantities or new flavors. . The once fringe theory has found mainstream support, including a study by the Federal Reserve Bank of Kansas City that found the markup contributed “substantially” to inflation.

But many economists and Federal Reserve Chairman Jerome Powell do not believe corporate profits are the cause of inflation. Instead, they attribute the sharp rise in prices to a variety of other factors, such as a tight labor market and supply chain issues.

And regardless of what the term means, the companies involved have insisted they are not responsible for rising food prices.

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

Some retail leaders include: target CEO Brian Cornell also pushed back against accusations of price gouging leveled against the industry. In an interview on CNBC’s “Squawk Box” last August, he said that if retailers raise their prices too high, they lose customers to competitors.

But Jharonne Martis, director of consumer research at LSEG, said there are some “red flags” that are getting the attention of politicians. She analyzed the gross profit margins of a variety of businesses, including grocery stores, consumer packaged goods companies, and restaurants, for years before, during, and after the Covid pandemic. This metric measures the ratio of a company’s net sales to its expenses.

Some of those companies are: hook, Procter & Gamble and Domino’s PizzaGross profit margins are higher than before the pandemic. She said this could reflect company-specific movements, such as Domino’s selling more pizzas or Kroger customers being more profitable. Private label brand.

Antitrust challenges to Kroger’s $24.6 billion acquisition of supermarket chain Albertsons have also increased scrutiny of the company’s pricing practices. The Federal Trade Commission is trying to stop the merger in court, and during the trial, Kroger’s top pricing executive said the retailer would raise milk and egg prices more than necessary to cover higher costs. He testified that he did.

In a company statement, Kroger described accusations of price manipulation as “misleading” and said nearly all 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,” the statement said.

On the other hand, there is no evidence of price gouging in the grocery industry, said Arun Sundaram, an equity research analyst at CFRA Research who covers grocery stores and consumer goods companies. He said the price increases are being driven by companies passing on some of the higher production costs to customers.

Higher margins can come from a variety of factors and are not necessarily a sign of corporate greed or price gouging, he said. It may rise because a business operates more efficiently or because the mix of products it sells has changed.

Margins may also reflect the strength of the brand and the willingness of consumers to tolerate large markups for trendy or popular items, such as unique sneakers or designer dresses.

But Sundaram said the debate may have some merit in the meatpacking industry, which has faced some price-fixing lawsuits. For example, JBS’ Pilgrim’s Pride Corporation, one of the nation’s largest chicken producers, pleaded guilty in 2021 to conspiracy to fix chicken prices and pass the costs on to consumers.

Even if Harris fails to pass a price gouging bill, resistance to higher costs is already starting to affect prices. So far, the backlash from shoppers and grocers has changed things significantly.

Consumer staples companies such as pepsico and campbell soup We’ve seen sales decline as consumers choose cheaper alternatives or choose fewer snacks. And as inflation slowed, most people raised prices less and less often.

“We have shoppers who see seven or eight price increases a year, and we know they’re upset about it,” said Steve Jurek, vice president of thought leadership at market research firm NielsenIQ.

walmartthe country’s top retailer and grocer by annual sales, said it was cracking down on price increases from the suppliers it serves. On an earnings call last month, CEO Doug McMillon said inflation had been more persistent in the dry and processed foods aisle. He said large retailers are asking suppliers to keep prices stable or reduce prices.

“We have less upward pressure, but we still have people talking about rising costs and we are fighting back aggressively because we think prices need to come down,” he said on the call.

Many food companies are reintroducing discounts to address consumer frustration and slowing sales, according to Zurek.

During the pandemic, many manufacturers stopped offering deals because they had trouble keeping their shelves stocked. There was no need to increase demand because customers were already loading their pantries and stocking up on hand sanitizer and toilet paper. Supply chain issues have made matters worse, and inflation has increased sales without requiring people to buy more items.

Now, for many companies, this dynamic has changed. And it’s not just food companies offering deals.

target Reduce prices on thousands of items. walmart There has been an increase in short-term transactions for certain products, especially in grocery stores. And this week, Party City announced price cuts on more than 2,000 items, including balloons and candy, as shoppers prepare for Halloween.

Still, shoppers won’t see an across-the-board reduction in grocery store prices, Zurek said.

“From an economic standpoint, you don’t want to talk about deflation. It’s just as bad as inflation,” he told CNBC.

However, there have been several instances where companies have reversed their price increases. Robert Crane, JM Smucker’s vice president of merchandising and merchandising commercialization, said the food company has delivered “product relief” to consumers where possible, such as with coffee brands including Folgers and Cafe Bustelo. Smucker’s coffee segment profit margin was 28.1% in fiscal 2024, down from 31.9% in fiscal 2019.

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

According to Crane, because these decisions provide legitimacy to top retailers, the company brings in experts who can explain the green coffee raw material market.

“We looked at the charts, talked about the forecast, talked about what caused it. Is it the weather? Is it speculation?” Crane said.

But that doesn’t mean stopping or slowing price increases is simple, CFRA’s Sundaram said.

He said a variety of factors had led to inflation, including soaring supply chain costs, rising wages due to labor shortages and bad weather in parts of the world that produce foods such as corn, soybeans and cocoa. He is skeptical that either administration can bring about a quick resolution.

“It was a complex set of factors that led to this happening, so it’s probably a complex set of factors that eliminates this problem as well,” he said.