What is 'price gouging' and why is Vice President Kamala Harris proposing to ban it? (2024)

With inflation and high grocery prices still frustrating many voters, Vice President Kamala Harris has proposed a ban on “price gouging” by food suppliers and grocery stores, as part of a broader agenda aimed at lowering the cost of housing, medicine and food.

It's an attempt to tackle a clear vulnerability of Harris' head-on: Under the Biden-Harris administration, grocery prices have shot up 21%, part of an inflation surge that has raised overall costs by about 19% and soured many Americans on the economy, even as unemployment fell to historic lows. Wages have also risen sharply since the pandemic, and have outpaced prices for more than a year. Still, surveys find Americans continue to struggle with higher costs.

“We all know that prices went up during the pandemic when the supply chains shut down and failed,” Harris said in Raleigh, North Carolina. “But our supply chains have now improved and prices are still too high.”

Here's a closer look at her proposals.

What is price gouging?

There is no strict definition that economists would agree on, but it generally refers to spikes in prices that typically follow a disruption in supply, such as after a hurricane or other natural disaster. Consumer advocates charge that gouging occurs when retailers sharply increase prices, particularly for necessities, under such circ*mstances.

Is it already illegal?

Several states already restrict price gouging, but there is no federal ban.

There are federal restrictions on related practices, such as price-fixing laws that bar companies from agreeing not to compete against each other and set higher prices.

Will Harris' proposal lower grocery prices?

Most economists would say no, though her plan could have an impact on future crises. For one thing, it's unclear how much price gouging is going on right now.

Grocery prices are still high compared to four years ago, but they increased just 1.1% in July compared with a year earlier, according to the most recent inflation report. That is in line with pre-pandemic increases.

President Joe Biden said that inflation has been defeated after the Wednesday's inflation report showed that it fell to 2.9% in July, the smallest increase in three years.

“There’s some dissonance between claiming victory on the inflation front in one breath and then arguing that there’s all this price gouging happening that is leading consumers to face really high prices in another breath,” said Michael Strain, an economist at the American Enterprise Institute.

In general, after an inflationary spike, it's hard to return prices to where they were. Sustained price declines typically happen only in steep, protracted recessions. Instead, economists generally argue that the better approach is for wages to rise enough so that Americans can handle the higher costs.

Why is Harris talking about this now?

Probably because inflation remains a salient issue politically. And plenty of voters do blame grocery stores, fast food chains, and food and packaged goods makers for the surge of inflation in the past three years. Corporate profits soared in 2021 and 2022.

At the same time, even if prices aren't going up as much, as Harris noted, they remain high, even as supply chain kinks have been resolved.

Elizabeth Pancotti, a policy analyst at Roosevelt Forward, a progressive advocacy group, points to the wood pulp used in diapers. The price of wood pulp has fallen by half from its post-pandemic peak, yet diaper prices haven't.

“So that just increases the (profit) margins for both the manufacturers and the retailers,” she said.

Did price gouging cause inflation?

Most economists would say it was a more straightforward case of supply and demand. When the pandemic hit, meat processing plants were occasionally closed after COVID-19 outbreaks, among other disruptions to the supply. Russia's invasion of Ukraine lifted the cost of wheat and other grains on global markets. Auto prices rose as carmakers were unable to get the semiconductors they needed from Taiwan to manufacture cars, and many car plants shut down temporarily.

At the same time, several rounds of stimulus checks fattened Americans' bank accounts, and after hunkering down during the early phase of the pandemic, so-called “revenge spending” took over. The combination of stronger demand and reduced supply was a recipe for rising prices.

Still, some economists have argued that large food and consumer goods companies took advantage of pandemic-era disruptions.

“What a lot of corporations did was exploit consumers' willingness” to accept the disruptions from the pandemic, Pancotti said.

Is banning price gouging like instituting price controls?

During the last spike of inflation in the 1970s, both Democratic and Republican presidential administrations at times imposed price controls, which limited what companies could charge for goods and services.

Some economists say Harris' proposal would have a similar impact.

“It’s a heavy-handed socialist policy that I don’t think any economist would support," said Kevin Hassett, a former top economic adviser in the Trump White House.

Pancotti disagreed. “The proposal is really about protecting consumers from unscrupulous corporate actors that are trying to just rip the consumer off because they know they can," she said.