Source: AFP
Kamala Harris’ price hike policy has been criticized by economists and analysts, who say it’s an uncompetitive proposition that could end up hurting rather than helping US consumers.
Harris, the Democratic presidential nominee, announced the policy last week as part of a raft of populist proposals that included a $6,000-a-year tax credit for families with newborn children and a $10,000 tax credit for first-time homebuyers.
If elected president, Harris will work with Congress to advance “the first federal ban on food and grocery price gouging,” her campaign said in a statement.
The proposals would seek to set “clear rules of the road” to prevent big companies from making “excessive” profits on food and groceries and strengthen state and federal regulatory powers to punish violators.
Although popular among the Democratic base, the price hike plans have drawn a backlash from Republican presidential candidate Donald Trump, who is running against Harris in November’s election.
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“Kamala will implement Soviet Price Controls,” he wrote in a social media post a day after the proposals were published.
Supporters of the policy say it has been mischaracterized and misunderstood.
“When there’s more concentration in an industry, we’ve seen much bigger increases in profit margins,” U.S. Sen. Elizabeth Warren said in an interview with CNBC on Friday.
The Harris campaign did not respond to a request for comment. However, several US media organizations, including the Washington Post, have reported that the Harris campaign sees the policy as an attempt to lift existing state-level rules on federal price gouging.
What price does it raise?
A global surge in inflation at the end of the Covid-19 pandemic has contributed to a sharp increase in the cost of everyday items across the United States.
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Consumer inflation has fallen sharply since peaking at more than nine percent in 2022. But Americans still face an overall price increase of just over 20 percent since Joe Biden took office, data show of the US Department of Labor.
However, “very little” of that increase was due to the surge in prices, Oxford Economics chief economist Ryan Sweet told AFP.
Instead, Sweet points to a pandemic-fueled supply shock and an increase in demand for goods and services fueled — in part — by generous federal support to households during the pandemic.
“What this debacle does is shift the blame from the Biden administration, which Harris was a part of, to the corporations,” said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.
“It’s a pretty successful political argument,” he told AFP. “It has no financial basis.”
“Penny Business”
The retail business is notoriously tough, with margins often in the low single digits — in stark contrast to higher-margin sectors like tech.
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“Is there a more competitive space than retail?” Target CEO Brian Cornell said in an interview with CNBC on Wednesday that he touched on Harris’ plans to raise prices.
“It’s a penny business and it’s a very competitive space and we’re providing the value that consumers are looking for,” he added.
But for people struggling with the cost of living, it’s a tough argument.
“People are seeing that gas prices are higher than they were a few years ago, food prices are going to be higher than they were a few years ago,” said Sweet, of Oxford Economics.
“But we will not go back to the prices we saw before the pandemic,” he added.
That’s because easing inflation isn’t translating into lower sticker prices at the grocery store.
Conversely, when wages are rising faster than inflation — as they have been for well over a year — the cost of these items relative to wages declines over time.
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But it’s a slow process.
The Federal Reserve looks increasingly confident that it is winning its battle to reduce inflation back to its long-term target of 2%.
On Friday, Fed Chairman Jerome Powell said “the time has come” to start cutting interest rates, raising expectations for a rate cut next month.
“There are clear signs that the pricing power of businesses is beginning to diminish,” Sweet said.
“I think over time, as inflation returns to the Fed’s target, this talk of raising prices will start to fade into the background,” he added.
Source: AFP
