(Bloomberg) -- In a campaign ad that has been blasting across swing states, Kamala Harris says she would “lower your food and grocery bills by going after price gougers,” later adding, “You work hard for your paycheck. You should get to keep more of it.”
But if the vice president triumphs in November in the US presidential election, she’ll face a tough challenge making sure a winning political message doesn’t end up a letdown.
That’s because her plan for a federal price-gouging ban is narrowly targeted for crises like the pandemic or emergency situations like those that have unfolded around Hurricane Helene and Hurricane Milton, where consumers have complained of excessive pricing for some essential items.
That means the ban would do little to keep America’s everyday grocery expenses from climbing higher, and may make it cold comfort to the broad swath of voters who see price gouging as a central reason for food inflation.
In a recent Bloomberg News/Morning Consult poll, some 71% of likely swing-state voters blamed price gouging, at least in part, for recent price increases in the grocery aisle — more than the share that blamed President Joe Biden or Covid-19.
That perception has taken hold despite little evidence that price gouging has been widespread in the food and grocery sector in recent years, or that it was a major cause of the latest bout of inflation. And it likely helps explain why Harris’ ban is so popular: Some 80% of swing-state likely voters said they favor her plan, including 78% of independents and 70% of Republicans.
“The proposal has caught the attention of the general public because purchasing groceries is an activity, along with gasoline prices, where people tend to be most watchful and sensitive of price changes,” said Peggy Stover of the University of Iowa Tippie College of Business, who had a long career in the grocery industry.
Price Changes
Food at home prices are up 26.5% from December 2019, according to the Bureau of Labor Statistics’ consumer price index data. Financial analysts, food industry consultants and supply chain experts largely attribute that to companies adapting to pandemic-related demand shocks, supply chain snarls, and labor shortages. Economists say that stimulus checks and other relief delivered by both the Trump and Biden administrations during the pandemic years also played a role in stoking inflation as the economy roared back.
During that time, profit margins have not expanded in a way that would suggest companies are raising prices much beyond passing on their own increased costs.
“The median gross margin for US packaged-food companies is narrower than pre-pandemic levels,” wrote Bloomberg Intelligence analysts Jennifer Bartashus and Jibril Lawal in a September note.
Everyone wants lower prices, Bartashus said in an interview, but there's no simple fix. “It’s not realistic to think that the cost of producing food can go back to where it was pre-pandemic,” she said.
Food retailer margins can reflect factors beyond price. Bartashus and Lawal write that higher margins can signal greater productivity and increased contributions from revenue streams like media and advertising.
Arun Sundaram, an analyst at CFRA Research, drew a similar conclusion in his analysis of whether price gouging was driving up prices, noting that the producer price index for finished consumer foods escalated substantially in early 2021, and the consumer price index for food at home followed. That indicates price increases followed manufacturers' cost increases, he said.
“This pattern is consistent with food inflation trends dating back to before the Great Financial Crisis, suggesting that nothing unusual is happening during this inflationary cycle,” wrote Sundaram, who covers the grocery sector.
Economists say the weight of evidence suggests the supply chain choke triggered by the pandemic remains the biggest culprit. Still, some researchers and activists warn of price gouging’s potential toll and that opportunistic profiteering did play a role. Isabella Weber of the University of Massachusetts at Amherst has used the term “sellers’ inflation” to describe how corporate pricing power can pad profits.
Lindsay Owens, executive director at Groundwork Collaborative, points to price-fixing lawsuits in the chicken, turkey and beef industries as signs that corporate greed can affect pricing. Price fixing — in which competitors conspire to keep prices at a certain level — is different from price gouging. But CFRA’s Sundaram agrees there “may be some substance” to the debate in the meatpacking industry because of this history.
Focus on Costs
Harris’ price-gouging ban is part of a broader economic pitch that is highly focused on lowering costs, including a pledge to increase competition in the food industry. Harris ads mentioning price gouging have aired at least 175,000 times on broadcast, cable and online, at a cost of more than $31 million, according AdImpact data compiled by Bloomberg.
There’s strategic reason to turn her emphasis there: When swing-state likely voters were asked in the latest Bloomberg News/Morning Consult poll which economic factors were most important to their vote, none was selected more often than cost of everyday goods.
In a sign that grocery pressures haven't gone away, food-at-home prices rose 0.4% in September in Bureau of Labor Statistics data, helping propel headline inflation. Broken down, five of the six major grocery store food group indexes increased — the index for meats, poultry, fish, and eggs rose 0.8% as the eggs index jumped 8.4%.
“The fact that some manufacturers have been participating in ‘shrinkflation,’ which is defined as selling a product in a smaller or ‘shrunk’ package but at the same price, has not gone unnoticed by shoppers,” said Stover of the University of Iowa.
But that’s not where Harris’ price-gouging plan is aimed. Instead, it’s meant to penalize companies that exploit crises such as recent hurricanes. North Carolina’s attorney general has received at least 196 complaints of gouging related to Hurricane Helene, and Florida’s attorney general has reportedly logged hundreds of complaints since Hurricane Helene.
“We are seeing why taking on price gouging is so important. There are bad actors who take advantage of vulnerable people in need to jack up prices,” said James Singer, a spokesperson for the Harris campaign.
Still, Harris’ plan leaves questions about what constitutes a crisis and what constitutes “excessive” corporate profits.
And while her campaign also notes that it will build on the dozens of state-level price gouging laws, such as those in effect in North Carolina and Florida, those don’t always have their intended impact.
After the pandemic lockdowns started, supermarket eggs skyrocketed in price, jumping 200% to 300% in just a few weeks, even as price-gouging protections that apply in states of emergency were activated in many places, according to a paper published in the journal of the Agricultural & Applied Economics Association in 2023.
Soon, lawsuits were filed against the retailers, at least one of whom claimed to have actually lost money on eggs. Most of the cases were dismissed or settled, but major retailers responded by freezing prices on thousands of products, including eggs, sometimes leading the grocers to reduce their egg purchases to limit their losses when the wholesale prices were too high to pass onto consumers, egg industry stakeholders told the study’s authors.
“It seems to me there was a big concern of pricing things unfairly or too high,” said lead author Dan Scheitrum, assistant professor of agribusiness at California Polytechnic State University, San Luis Obispo. “Cheap eggs don’t do anybody any good if they’re not there to be purchased.”
And then there’s the fact the price gouging itself doesn’t have a widely agreed upon definition, and is often in the eye of the beholder.
Michael Sinkinson, an expert on competition policy at Northwestern University’s Kellogg School of Management, says designing price gouging policy isn’t easy — but there’s no doubt it reverberates with the public. “There is no economic definition of price gouging,” said Sinkinson, who was previously an economics adviser at the White House. “Most people, though, have this sense that they know it when they see it.”
--With assistance from Gregory Korte.
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