As inflation and high grocery prices continue to frustrate many voters, Vice President Kamala Harris proposed Friday that food suppliers and grocery stores ban “price gouging” as part of a broader program to lower the cost of housing, medicine and food. .
It’s an attempt to address Harris’ clear vulnerability: During the Biden-Harris administration, grocery prices have risen 21 percent, part of an inflation that has raised overall costs by about 19 percent and inconvenienced many Americans. in the economy, even though unemployment fell to a historically low level. Wages have also risen sharply since the pandemic, and have exceeded prices for more than a year. Yet research shows that Americans continue to struggle with higher costs.
“We all know that prices went up during the pandemic when supply chains were shut down and failed,” Harris said Friday in Raleigh, North Carolina. “But our supply chains have now improved and prices are still too high.”
Will his suggestions do much to lower prices? And what is that “price increase” even? The answers to these and other questions are below:
What is a price increase?
There is no strict definition that economists agree on, but it generally refers to price spikes that typically follow a supply disruption, such as after a hurricane or other natural disaster. Consumer advocates argue that gouging occurs when retailers sharply raise prices, especially on essentials, in such circumstances.
Is it already illegal?
Several states already restrict price burning, but there is no ban at the federal level.
Federal restrictions involve related but different practices, such as price-fixing laws, which prevent companies from agreeing not to compete with each other and setting higher prices.
Will Harris’ proposal lower grocery prices?
Most economists would say no, even though his plan could affect future crises. First, it is unclear how much price increases are going on.
Grocery prices are still painfully high compared to four years ago, but rose just 1.1% year-on-year in July, according to the latest inflation report. This is in line with the increases before the pandemic.
President Joe Biden said Wednesday that inflation has been defeated after Wednesday’s inflation report showed it fell to 2.9 percent in July, the smallest increase in three years.
“There’s a bit of a dissonance between claiming a win on the inflation front in one breath and then arguing that all this price increase is causing consumers to face really high prices in another breath,” said Michael Strain, an economist at the American Enterprise Institute.
Usually, after a spike in inflation, it is very difficult to bring prices back to their former levels. Sustained price declines typically only occur during a steep, prolonged recession. Instead, economists generally argue that the better approach is for wages to keep rising enough for Americans to handle the higher costs.
So why is Harris talking about this now?
Probably because inflation is still a very important issue politically. And many voters blame grocery stores, fast food chains, and food and packaging manufacturers for rising inflation over the past three years. Corporate profits increased sharply in 2021 and 2022.
“It could be that they’re looking at polls that show voters’ biggest concern is inflation and that many voters blame corporations for inflation,” Strain said.
Meanwhile, while prices won’t rise as much as Harris noted, they will remain high even after the kinks in the supply chain are ironed out.
Elizabeth Pancotti, a policy analyst at the progressive advocacy group Roosevelt Forward, points to the wood pulp used in diapers. The price of wood pulp has dropped by half from its post-pandemic peak, but diaper prices have not.
“So it just increases the (profit) margins for both manufacturers and retailers,” he said.
Did the rise in prices cause inflation?
Most economists would say no, that it was a more straightforward case of supply and demand. When the pandemic hit, meat processing plants were sometimes shut down after COVID-19 outbreaks, including supply disruptions. Russia’s attack on Ukraine raised the price of wheat and other grains on the global market. Car prices rose when automakers couldn’t get all the semiconductors they needed from Taiwan to make cars, and many car factories were temporarily closed.
At the same time, several stimulus checks fattened Americans’ bank accounts, and after the early stages of the pandemic rumbled, so-called “revenge spending” took over. The combination of strong demand and reduced supply was a recipe for rising prices.
However, some economists have argued that major food and consumer goods companies took advantage of the pandemic-era disruption. Consumers saw empty store shelves and heard numerous stories of broken supply chains, and felt, at least momentarily, that they had no choice but to accept higher prices.
Economist Isabella Weber of the University of Massachusetts Amherst called it “sellers’ inflation.” Others called it “greed.”
“Many companies took advantage of consumers’ willingness” to accept the disruption caused by the pandemic, Pancotti said.
Is banning prices the same as introducing price controls?
During the last spike in inflation in the 1970s, both Democratic and Republican presidential administrations sometimes imposed price controls, specifically limiting what businesses could charge for goods and services. They were widely blamed for creating gas shortages and long queues.
Some economists say Harris’ proposal would have a similar effect.
“It’s a heavy-handed socialist policy that I don’t think any economist would support,” said Kevin Hassett, a former Trump White House economic adviser.
But Pancotti disagreed. He argued that it was closer to a consumer protection measure. Under Harris’ proposal, the government would not set prices, but the Federal Trade Commission could investigate price spikes.
“The proposal is really about protecting consumers from unscrupulous business operators who are just trying to cheat the consumer because they know they can,” he said.
