Harris says price gouging is to blame for high prices. Is she right?

Vice President Kamala Harris plans to unveil a first-ever federal price-fixing plan for corporations as part of a sweeping initiative intended to reduce grocery prices and other everyday expenses.

“There’s a big difference between fair pricing in competitive markets and excessive prices unrelated to the costs of doing business,” the Harris campaign said in a statement. “Americans can see that difference in their grocery bills.”

The Democratic presidential nominee will detail the proposal further during a speech in North Carolina today. 

Yet some economists have cast doubt on whether corporations are truly to blame for high grocery prices.

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“Food prices are affected by a lot of things. The weather, geopolitics, the pandemic and all the supply chain issues and massive amounts of monetary and fiscal stimulus. And that caused prices to go haywire in a lot of industries,” Scott Lincicome, vice president of general economics and trade at the Cato Institute, told FOX Business. 

“There’s really not a lot of evidence that there’s any sort of price gouging or profiteering or corporate greed.”

Lincicome pointed to the latest data published by New York University, which shows the American grocery industry had a 1.18% net profit margin in 2023.

“When you actually look at the players in the market, they’re just simply not reaping windfall profits here,” he said.

Recent research published by the Federal Reserve Bank of San Francisco also suggests corporate greed is not a primary driver of the inflation spike that began in early 2021.

Although some companies jacked up prices after the COVID-19 pandemic — markups surged for gasoline and cars in 2021, for instance — the researchers found the overall markup rate has generally remained flat, consistent with previous economic recoveries over the past three decades. 

“These patterns suggest that markup fluctuations have not been a main driver of the ups and downs of inflation during the post-pandemic recovery,” Sylvain Leduc, Huiyu Li and Zheng Liu wrote in the bank’s weekly Economic Letter.

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The findings run counter to Harris’ suggestion that corporate greed and price gouging are to blame for still-elevated prices. 

While corporate profits did rise after the pandemic, the San Francisco Fed researchers said they are “typically volatile” and frequently rise in the early stages of economic recoveries. Data for the current recovery shows that the increase in corporate profits is “not particularly pronounced compared with previous recoveries,” which did not experience high inflation. 

“Overall, our analysis suggests that fluctuations in markups were not a main driver of the post-pandemic surge in inflation, nor of the recent disinflation that started in mid-2022,” the researchers wrote.

Under President Biden, inflation skyrocketed to the highest level in 40 years. The cost of everyday necessities like rent, groceries and gasoline surged, prompting the Federal Reserve to hike interest rates to a two-decade high. Higher interest rates, in turn, created other downstream effects, pushing mortgage rates above 8% for the first time in decades and making it much harder for businesses to access credit.

While inflation has fallen sharply from a peak of 9.1% and the Fed appears poised to cut interest rates this fall, many Americans have yet to feel relief.

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Food prices are up 21% from the start of 2021, while shelter costs are up 21.6%, according to FOX Business calculations. Energy prices, meanwhile, are up 32%. Higher prices are particularly devastating for lower-income Americans because they tend to spend more of their already-stretched paycheck on necessities and have less flexibility to save money.

At the same time, the cost of groceries is up just 3.2% when compared with January 2023. 

“A policy like this is far easier explained by its politics than economics,” Lincicome said. “We know that people, even though grocery prices have moderated, are still ticked when they go to the grocery store, and prices are much higher than they remember just a few years ago. And that is a potential liability for the Harris campaign.”