Who would have ever thought that increased costs get passed along to consumers?
it’s worth looking at food prices, which have become a potent political issue in the presidential campaign. Vice President Kamala Harris outlined a plan, still lacking many concrete details, that would ban corporate price gouging on food and groceries. Part of the food-prices issue also can be seen in an antitrust trial, beginning Monday, over Kroger’s KR0.44% planned takeover of rival grocery-store chain Albertson’s AC -0.41%.
A New York Fed analysis — written ahead of the Harris proposal — said rising profit margins aren’t really to blame.
The analysis, written by economic research advisor Thomas Klitgaard, did acknowledge that margins have gone up. Citing government data, he said margins at food and beverage retail stores have from 2.9% in 2019 to 4.4% in 2023. But that’s equivalent to roughly $10 billion of a $100 billion increase in revenue, he noted.
Instead, he laid the blame on two factors. One was the huge spike in agricultural and livestock prices. “Looking at the whole period [from 2005] shows that grocery prices seem to only respond noticeably when commodity prices make big moves, like the jumps in 2008 and 2011 and the collapse in 2015. The rationale is that there are many other input costs dictating food prices so it takes unusual swings in commodity prices to affect grocery prices,” he said.
Klitgaard didn’t examine why commodity prices went up so much, but part of the reason was Russia’s war against Ukraine, which hurt fertilizer supplies as well as wheat supplies.
The other factor behind the surge in food prices was the large wage increases for grocery workers. Since 2019, industry wages have risen by 15 percentage points more than those in the food-manufacturing sector, or than the workforce as a whole. These are still low-paying jobs — about $13 an hour less than the private-sector average — but less low-paying than before.
Now food-price inflation is coming down. “This analysis suggests that the significant moderation in food inflation since the start of 2023 is due to still-high wage inflation for grocery workers being offset by the retreat in commodity prices,” Klitgaard said
it’s worth looking at food prices, which have become a potent political issue in the presidential campaign. Vice President Kamala Harris outlined a plan, still lacking many concrete details, that would ban corporate price gouging on food and groceries. Part of the food-prices issue also can be seen in an antitrust trial, beginning Monday, over Kroger’s KR0.44% planned takeover of rival grocery-store chain Albertson’s AC -0.41%.
A New York Fed analysis — written ahead of the Harris proposal — said rising profit margins aren’t really to blame.
The analysis, written by economic research advisor Thomas Klitgaard, did acknowledge that margins have gone up. Citing government data, he said margins at food and beverage retail stores have from 2.9% in 2019 to 4.4% in 2023. But that’s equivalent to roughly $10 billion of a $100 billion increase in revenue, he noted.
Instead, he laid the blame on two factors. One was the huge spike in agricultural and livestock prices. “Looking at the whole period [from 2005] shows that grocery prices seem to only respond noticeably when commodity prices make big moves, like the jumps in 2008 and 2011 and the collapse in 2015. The rationale is that there are many other input costs dictating food prices so it takes unusual swings in commodity prices to affect grocery prices,” he said.
Klitgaard didn’t examine why commodity prices went up so much, but part of the reason was Russia’s war against Ukraine, which hurt fertilizer supplies as well as wheat supplies.
The other factor behind the surge in food prices was the large wage increases for grocery workers. Since 2019, industry wages have risen by 15 percentage points more than those in the food-manufacturing sector, or than the workforce as a whole. These are still low-paying jobs — about $13 an hour less than the private-sector average — but less low-paying than before.
Now food-price inflation is coming down. “This analysis suggests that the significant moderation in food inflation since the start of 2023 is due to still-high wage inflation for grocery workers being offset by the retreat in commodity prices,” Klitgaard said
