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Kamala Harris wants to take on price gouging. It’s hard to find agreement on what it even is

  • Price gouging has become a buzzword during the presidential race, as consumers remain frustrated by the higher prices of groceries and more.
  • Democratic presidential nominee Kamala Harris unveiled a plan this week to try to crack down on the practice, though she would face a difficult road to passing and implementing a bill.
  • The term has different meaning to different people, and the majority of states already have laws that forbid price gouging in emergencies, such as natural disasters.

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.

What is price gouging?

One of the challenges around accusing companies of price gouging — and promising to address it — is that the term means different things to different people. Rakeen Mabud, chief economist at progressive thinktank Groundwork Collaborative, said it typically is defined in two major ways.

Economists and lawyers use a technical definition, which refers to when companies hike prices during emergencies, like doubling the price of bottled water during a hurricane, she said. Thirty-seven U.S. states already have laws that forbid price gouging in emergencies.

But some consumers and politicians have embraced a looser definition: the practice of companies charging unfair prices just because those brands or retailers have the market power to do so, Mabud said.

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.

How shoppers are influencing prices

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.

“You’ve got a shopper who has seen seven or eight [price hikes] in a year, and you know that they’re frustrated with it,” said Steve Zurek, vice president of thought leadership at market research firm NielsenIQ.

Walmart, the nation’s top retailer and grocer by annual revenue, said it’s cracking down on price hikes by vendors that it carries. On an earnings call last month, CEO Doug McMillon said inflation has been stickier in aisles that carry dry groceries and processed foods. He said the big-box retailer is calling on its suppliers to keep prices stable or cut them.

“We have less upward pressure, but there are some that are still talking about cost increases, and we’re fighting back on that aggressively because we think prices need to come down,” he said on the call.

To address consumers’ frustration and slower sales, many food companies are bringing back discounts, according to Zurek.

During the pandemic, many manufacturers stopped offering deals because they were struggling to keep shelves stocked. They didn’t need to boost demand because customers were already loading their pantries and stockpiling hand sanitizer and toilet paper. Supply chain issues exacerbated the problem, and inflation lifted sales without them needing people to buy more items.

That dynamic has now flipped for many companies. And it isn’t just food companies offering deals.

Target cut prices on thousands of items. Walmart has increased short-term deals on certain products, especially in the grocery department. And this week, Party City announced lower prices on more than 2,000 items such as balloons and candy as shoppers gear up for Halloween.

Even so, shoppers are unlikely to see grocery store prices slashed across the board, Zurek said.

“From an economic standpoint, you never want to be talking about deflation ­­— that’s almost as bad as inflation,” he told CNBC.

But there have been a few examples of companies reversing price hikes. Robert Crane, J.M. Smucker’s vice president of sales and sales commercialization, said the food company has passed on “commodity relief” to consumers when possible, such as with its coffee brands, which include Folgers and Cafe Bustelo. In fiscal 2024, Smucker’s profit margins for its coffee division were 28.1%, down from 31.9% in fiscal 2019.

But in early October, Smucker plans to hike its coffee prices for the second time this year, responding to rising commodity prices.

As it justifies those decisions to top retailers, the company brings in professionals who can explain the green coffee commodity market, according to Crane.

“We would review charts, we would talk about outlooks, and we would talk about what’s driving it — is it weather? Is it speculation driven?” Crane said.

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

He said a long list of factors led to inflation, including a spike in supply-chain costs, wage increases stemming from labor shortages and poor weather in regions of the world that produce food such as corn, soybeans and cocoa. He’s skeptical that either administration can bring about a quick fix.

“Because it was a complicated set of factors that led to this, it’s going to be a complicated set of factors that probably gets rid of this as well,” he said.

Source: Business - cnbc.com

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