Harris to propose ban on grocery price gouging. Would it cool inflation?

(WASHINGTON) — A highly-anticipated economic agenda to be unveiled by Vice President Kamala Harris on Friday will include a federal ban on price gouging for food and groceries, the Harris campaign announced.

The proposal will be presented to voters alongside other plans to address elevated inflation, such as bolstered antitrust enforcement in the grocery sector and greater latitude to investigate corporate practices, the campaign said in a press release.

A ban on price gouging would in theory disallow food and grocery companies from hiking prices an excessive amount over a set period of time, economists told ABC News. They disagreed, however, on whether the measure could control the rise of food prices or if such an outcome is desirable.

Inflation remains a top issue for voters and a potential vulnerability for Harris, since rapid price increases emerged during the Biden administration. While inflation has fallen dramatically from its peak, consumers still face prices roughly 20% higher than where they stood before Biden took office.

In response to ABC News’ request for comment, the Harris campaign provided a statement outlining its economic proposals.

“Vice President Harris knows that rising food prices remain a top concern for American families. Many big grocery chains that have seen production costs level off have nevertheless kept prices high and have seen their highest profits in two decades. While some food companies have passed along these savings, others still have not,” the statement said.

Here’s what to know about how this federal ban on price gouging would operate and whether it would be effective:

How would a federal price-gouging ban work?

The Harris campaign said the measure would set “clear rules of the road to make clear that big corporations can’t unfairly exploit consumers to run up excessive corporate profits on food and groceries.”

Details on the policy remain limited, however. Economists told ABC News that the Harris proposal may end up resembling similar bans currently on the books in 37 states. Those bans prohibit companies from exploiting a sudden imbalance between supply and demand by significantly hiking prices.

“The typical example is a natural disaster. If a water company comes and sells water at double, triple or five times the price of what people can get it at five miles away, just to be able to take advantage of the situation – that’s price gouging,” Niko Lusiani, director of the corporate power program at progressive advocacy group Roosevelt Forward, told ABC News.

State bans define “price gouging” in various ways. Some measures establish a subjective set of criteria, such as a sudden and significant spike in prices; while others detail a specific numerical amount of price growth necessary to violate the law, Luis Cabral, a professor of economics at New York University who studies price gouging, told ABC News.

“It’s not easy to measure,” Cabral said, noting that qualitative definitions risk being overly vague while quantitative ones struggle to set the boundaries around what constitutes price gouging.

Many of the state-level bans on this practice set a condition that an emergency is necessary to trigger application of the law. The Harris proposal would likely omit such a stipulation, Lusiani said, since we are years removed from the outbreak of COVID-19.

“It’ll clearly be different because now we’re on the other side of the pandemic,” Lusiani added, but he noted that current price hikes could be viewed as a result of that disruption.

The Harris campaign said it would enforce a ban by slapping offenders with financial penalties.

Most state price-gouging bans punish violators with civil penalties enforced by the state attorney general, while other measures impose criminal penalties, according to the National Conference of State Legislatures, a group that tracks state laws.

“Enforcement will be critical,” Lusiani said. “A ban by itself won’t stand on its own legs.”

Would this type of ban help control inflation?

Economists disagreed sharply about whether a federal price-gouging ban would help control price increases and, if so, to what extent that outcome would benefit the economy.

The stark divide owed in part to a difference of opinion about the role of corporate profiteering in the pandemic-era bout of inflation, as well as a clash over the effectiveness of government intervention in addressing it.

Experts who faulted corporate price gouging for a portion of the price increases said it arose from market concentration that allowed a handful of dominant companies in a given industry, including the food and grocery sector, to raise prices without fear of competitors undercutting them with lower-priced alternatives.

Grocery retailer profit margins surged in 2021 and rose even higher two years later, even after price increases had begun to cool, a Federal Trade Commission study in March showed.

A price-gouging ban would help police corporations that otherwise would be tempted to leverage their market power by excessively raising prices, the experts said.

“Large, incumbent corporations that control a large share of a sector, including grocery companies, have way too much power to control prices,” Lusiani said. “That’s an underlying cause of the inflation.”

Some economists who spoke to ABC News attributed the acceleration of price increases over recent years to a textbook example of imbalance between supply and demand. The pandemic snarled global supply chains and triggered lockdowns, causing shortages of goods and workers. Meanwhile, government stimulus boosted demand, sending too many dollars after too few products.

“It’s economics 101 that if you stimulate demand while simultaneously deterring supply, your equilibrium will be significantly higher prices,” Michael Faulkender, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, told ABC News.

In turn, Faulkender dismissed any potential benefit from a federal price-gouging ban. “It just sounds to me that we’re creating even more burdensome regulations that will actually raise prices for consumers,” Faulkender said.

Joe Brusuelas, chief economist for the accounting firm RSM US, said he opposes an outright ban but supports moderate measures that could deter price hikes, such as expanded government oversight of corporate practices.

Bruseulas pointed to data released this week showing food prices had risen 2.2% in July compared to a year ago. That level of inflation essentially stands at normal levels, Brusuelas said, suggesting that price increases had been reined in without a federal price-gouging ban in place.

“I’m concerned when I hear the federal government use the word ‘ban,’ but I’m not concerned about an exercise in oversight,” Brusuelas said.