Kamala Harris promises to fight inflation

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

The vice president first teased the federal ban in mid-August, prompting former President Donald Trump to attack the plan as “Soviet-style” price controls. Although Harris released more detail Wednesday as part of her 82-page economic plan, it’s still unclear what price hikes her administration would see as illegal “price gouging.”

“The bill will set rules of the road to make clear that big corporations can’t unfairly exploit consumers during times of crisis to run up excessive corporate profits on food and groceries,” the Harris-Walz campaign wrote in the policy pitch, released about six weeks before Election Day.

Higher prices — and who or what is to blame for them — have become a central theme in the presidential race, as steep grocery bills frustrate Americans and retailers anticipate a holiday season marked by deal-hunting. Harris and Trump have each proposed their own solutions to combat inflation, as Americans continue to pay more for groceries, energy, housing and other everyday expenses.

In the last year, prices for food at home have risen just 1%, according to the Bureau of Labor Statistics. But groceries are still 25% more expensive than they were in August 2019, before supply chain snarls and inflation sent prices soaring.

Voters will ultimately weigh in on what role government leaders should play in companies’ pricing. Generally, Republicans support fewer economic regulations, although Trump has suggested limiting food imports as a way to lower grocery prices. Economists have warned that the strategy would likely backfire.

Halting price hikes is a popular idea with voters. Sixty percent of adult U.S. citizens support capping increases on food and grocery prices, according to a poll by The Economist/YouGov conducted from Aug. 25-27.

Still, Harris would face a tough road to passing any price-gouging legislation in Congress, and it’s still not clear how cracking down on price increases would work in practice.

As prices for groceries and other goods soared in 2021 and 2022, a popular explanation emerged: “greedflation,” the notion that companies made inflation worse by raising prices on their products without offering more to customers, such as a larger quantity or new flavor. The once-fringe theory has gained mainstream support, including a study from the Federal Reserve Bank of Kansas City, which found that markups contributed “substantially” to inflation.

But many economists — and Fed Chair Jerome Powell — don’t think that corporate profits are to blame for inflation. Instead, they attribute the sharp rise in prices to a variety of other factors, such as the tight labor market and supply chain issues.

And regardless of what the term means, the companies involved have argued they are not to blame for higher grocery prices.

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

Some retail leaders, including Target CEO Brian Cornell, have also pushed back against price gouging accusations waged against the industry. In an interview on CNBC’s “Squawk Box” in August, he said retailers lose customers to competitors if they hike prices too high.

Yet Jharonne Martis, director of consumer research at LSEG, said there are some “red flags” catching politicians’ attention. She analyzed gross profit margins for a cross-section of companies, including grocers, consumer packaged goods companies and restaurants during the years before, during and after the Covid pandemic. The metric measures the percentage of net sales that a company makes compared with its costs.

Some of those companies, including Kroger, Procter & Gamble and Domino’s Pizza, have higher gross profit margins than they did prior to the pandemic. She said that can reflect company-specific moves, such as Domino’s selling more pizza or Kroger customers gravitating to its more profitable private label brands.

An antitrust challenge to Kroger’s $24.6 billion acquisition of supermarket chain Albertsons has also increased scrutiny of companies’ pricing practices. The Federal Trade Commission is trying to stop the merger in court, and during the trial, Kroger’s top pricing executive testified that the retailer raised prices on milk and eggs more than required to account for higher costs. 

In a company statement, Kroger described accusations of price gouging as “misleading” and said that nearly all costs of running a grocery store, including labor and transportation, have risen significantly since 2020.

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

On the other hand, Arun Sundaram, an equity research analyst at CFRA Research who covers grocers and consumer packaged goods companies, said he sees no evidence of price gouging in the grocery industry. He said price hikes are coming from companies passing on some of their higher production costs to customers.

Higher margins can come from a variety of factors and aren’t necessarily a sign of corporate greed or price gouging, he said. They can rise because companies are operating more efficiently or because the mix of merchandise they sell has changed.

Margins also can reflect the power of a brand and consumers’ willingness to tolerate large markups on fashionable or popular items, such as a unique pair of sneakers or a designer dress.

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

Even if Harris never passes price-gouging legislation, resistance to high costs has already started to affect prices. So far, pushback from shoppers and grocers has largely moved the needle.

Consumer staples companies such as PepsiCo and Campbell Soup have seen their sales volumes shrink as consumers opt for cheaper alternatives or snack less. And as inflation slows, most have raised their prices less — and less frequently.