Kamala Harris wants to ban price gouging to tackle inflation. Here’s how economists rate the plan.

Democratic presidential candidate Kamala Harris vowed to enact the first federal law against price gouging from food suppliers and grocery stores as part of her campaign. broad economic plan to reduce the cost of living. But many economists say they doubt the policy will lower food costs for consumers.

In his speech on Friday, Harris highlighted the rising cost of groceries, which has increased by 25% since January 2020, while noting that some food companies have at the same time made profits. Certain types of food have seen sharper spikes, with Harris pointing out that bread is now about 50% more expensive than it was before the COVID-19 pandemic.

Specifically, Harris said he wants to target businesses that don’t “play by the rules” with illegal pricing. He also noted that ensuring competition in the industry is essential to lowering grocery costs for Americans.

A spokesman for the Harris campaign said that Harris’ comprehensive plan, which emphasizes the importance of industry competition, and does not prohibit price gouging alone, can help bring down prices.

Grocery prices are a major burden on American wallets, with two-thirds of voters polled by Yahoo Finance/Ipsos late last year saying they felt inflation was the hardest. And many consumers blame price gouging as the reason for high grocery prices, new research has found, although economists note the cause is far more complex.

“There are many reasons for the high inflation we have experienced over the past several years, but aggressive or unfair pricing practices are at the bottom of the list of reasons, if on the list at all,” Mark Zandi, chief economist. at Moody’s Analytics, told CBS MoneyWatch. “It may have been a problem when the supply chain was disrupted by the pandemic, but now it is difficult to show examples of significant and useful prices.”

Price gouging refers to predatory practices where businesses charge excessively high prices for scarce goods, such as after extreme weather events, for example.

Grocery inflation can be attributed to a number of issues, from higher labor costs at manufacturers being passed on to consumers, record low number of cattle that drove up the cost of beef and steak. However, some policy experts over the past few years have blamed “greedflation” and price gouging as contributors, although some economists say there isn’t much evidence to support it.

Food price spikes “are mostly the result of the market,” Michael Strain, director of economic policy studies at the American Enterprise Institute (AEI), a conservative public policy think tank, told CBS MoneyWatch. “Companies may have improved their ability to increase the prices they charge, but I don’t see anything that I would describe as ‘price gouging’.”

What is the price of gouging?

There is a line between the normal business practice of raising prices when demand increases or if the manufacturer faces higher costs, versus the predatory practice of price gouging.

An unusually high price, up to more than 20% of the usual cost of goods, is one of the signs of over-pricing, according to the US Public Interest Research Group (PIRG) guide to identify the practice. If a bottle of water from one brand costs twice as much as a competitor’s, it may be price gouging, according to the guide.

Already, dozens of states have laws banning the practice, although there is currently no federal law against it. PIRG urges consumers who believe they are experiencing price gouging to report to the company, as well as the country’s attorney general.

While economists say imposing a federal price cap isn’t necessarily a bad policy, they insist it won’t lower grocery prices, because there are already state laws on the books and because the causes of food inflation are complex.

“There are countries that have laws in place already to stop predatory pricing when there is a crisis. For the federal law to do what the state law is not a bad idea, but I don’t know who will play a role in bringing it. reduce the cost of food in the current context,” said Zandi .

Still, a federal crackdown on price gouging could prove popular with some voters, even if it doesn’t disrupt prices, some economists note.

“This week, Harris said he would crack down on big companies that engage in illegal price gouging and corporate landlords who unfairly raise rents,” Oxford Economics said in a research note Friday. “It makes it more political than economic.”

What can reduce food prices?

However, economists agree with Harris that increasing competition in the grocery and food industry can help address rising food prices by increasing the supply of products in the market. The latter would give consumers more choice while reducing companies’ ability to set unreasonable prices.

Ensuring that consumers have many alternatives is important to keep prices high, Zandi noted. While prices have risen compared to pre-pandemic levels, they have risen slightly over the past year. For example, the price of groceries increased by 1.1% in July every year, lower than overall inflation rate 2.9%.

“The market is doing well in many respects,” Zandi said. “Some of the higher prices may be due to some consolidation in the wholesale business.”

Even so, Zandi thinks the US Department of Justice (DOJ) should be cautious about proposed mergers or acquisitions of food companies, and the bar for approving such deals should be high. Earlier this year, the Federal Trade Commission sued to block the proposed merger of Kroger and Albertsons, argue that the combination of the two grocery giants will lead to higher prices for consumers. The deal is currently on hold.

“The DOJ must look carefully at what is proposed, and look at it through the prism of what it could mean for the market,” Zandi said. “And the Federal Trade Commission should be looking into the pricing practices of stores to make sure they’re not doing anything anti-competitive.”

These types of policies, he believes, will be most effective in making groceries more affordable for everyday Americans, and taming high prices.

“It can and should be done to ensure that there is competition in the market and that businesses follow good pricing policies,” he said. “And prices should be transparent so people can buy well.”