With inflation and rising food prices still frustrating many voters, Vice President Kamala Harris on Friday proposed banning “price gouging” by food suppliers and grocers as part of a broader package aimed at lowering the costs of housing, medicines and food.
It’s an attempt to address head-on a glaring weakness for Harris: Under the Biden-Harris administration, food prices have soared 21%, soaring inflation has pushed overall costs up about 19%, and many Americans are increasingly dissatisfied with the economy, even as the unemployment rate has fallen to an all-time low. Wages have also soared since the pandemic and have outpaced prices for more than a year. Still, surveys show Americans continue to struggle with high costs.
“We all know that during the pandemic, supply chains were shut down and dysfunctional, which caused prices to rise,” Harris said Friday in Raleigh, N.C. “But while the supply chain is improving now, prices are still too high.”
Would her proposal go much further in lowering prices? And what exactly is “price gouging”? The answers to these questions and more are below.
What is price gouging?
There is no strict definition agreed upon among economists, but it generally refers to price spikes that occur after a supply disruption, such as after a hurricane or other natural disaster. Consumer advocates say that when retailers dramatically increase prices in such situations, especially of essential goods, they amount to cheapening.
Is that already illegal?
Some states already have restrictions on price gouging, but there is no ban at the federal level.
There are federal regulations against related but different practices, such as price-fixing laws that prohibit companies from agreeing to set higher prices without competing with each other.
Would Harris’ proposals lower grocery prices?
Her plan could have an impact on future crises, but most economists would say not: For starters, it’s unclear how much price gouging is happening now.
While food prices are still painfully high compared to four years ago, the latest inflation report showed they rose just 1.1% in July from a year earlier, in line with pre-pandemic rates.
President Joe Biden said Wednesday that inflation has been overcome after Wednesday’s inflation report showed inflation fell to 2.9% in July, the lowest level in three years.
“There’s a bit of a contradiction in claiming victory on the inflation front in one breath and then saying in the next breath that we’re seeing price gouging that’s leading to consumers facing really high prices,” said Michael Strain, an economist at the American Enterprise Institute.
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It’s generally very hard to bring prices back down after an inflation spike; sustained price declines usually only happen in a sharp, prolonged recession. Instead, economists generally argue that letting wages continue to rise to help Americans keep up with rising costs is a better approach.
So why is Harris talking about this now?
That’s probably because inflation remains a highly politically salient issue, and many voters blame grocery stores, fast-food chains and food and packaged goods manufacturers for the surge in inflation over the past three years. Corporate profits have soared in 2021 and 2022.
“They may be taking note of polls that show inflation is the top concern facing voters and that many voters blame corporations for it,” Strain said.
At the same time, as Harris noted, even if prices don’t rise as much, and supply chain glitches are ironed out, prices will still remain high.
Elizabeth Pancotti, a policy analyst at Roosevelt Forward, a progressive advocacy group, points to wood pulp used in diapers: While the price of wood pulp has fallen by half since its post-pandemic peak, the price of diapers has not.
“So it just increases the (profit) margins for both manufacturers and retailers,” she said.
Did price gouging cause inflation?
Most economists would say no, it’s a simpler question of supply and demand. When the pandemic hit, meat processing plants experienced supply disruptions and even closed down after the COVID-19 outbreak. Russia’s invasion of Ukraine caused prices of wheat and other grains to rise on the world market. Automakers were unable to get all the semiconductors they needed to build cars from Taiwan, which caused car prices to rise and led to the temporary closure of many auto plants.
At the same time, several rounds of stimulus checks have swelled Americans’ bank accounts, and so-called “revenge spending” has taken over after being suppressed in the early stages of the pandemic. The combination of increased demand and reduced supply has led to higher prices.
Still, some economists argue that big food and consumer goods companies took advantage of pandemic-era chaos: Consumers saw empty store shelves, heard numerous stories of supply-chain disruptions, and felt they had little choice but to accept higher prices, at least temporarily.
Economist Isabella Weber of the University of Massachusetts, Amherst, calls this “sellers’ inflation.” Others call it “greedflation.”
“What many companies did was exploit consumers’ willingness to accept the disruptions caused by the pandemic,” Pancotti said.
Is banning unfair price gouging akin to imposing price controls?
During the last inflationary spike in the 1970s, both Democratic and Republican presidential administrations imposed price controls that specifically limited the prices companies could charge for goods and services. These controls were widely blamed for creating gasoline shortages and long lines to buy gasoline.
Some economists say Harris’ proposal would have a similar effect.
“This is a heavy-handed socialist policy that no economist would support,” said Kevin Hassett, a former chief economic adviser to President Trump’s administration.
Pancotti disagreed, arguing it was more of a consumer protection measure. Under Harris’ proposal, the government wouldn’t dictate prices, but the Federal Trade Commission could investigate price gouging.
“This proposal is designed to protect consumers from unscrupulous companies trying to rip them off,” she said.
