We read over the report, analyzed it, and broke it down into the most important things you should know.
A new Biden administration report explores the rising cost of groceries. It finds that major grocery stores are using their power to hike prices and increase their profits – a major factor in ongoing inflation.
While a supply crunch and a massive injection of stimulus following the pandemic initially allowed companies to charge more for their products, experts have battled for years over whether margins – now at a record high – have themselves become a cause of inflation, keeping prices higher for longer than they should otherwise have been.
Economists are debating the root causes of recent inflation. Some, like economists Isabella Weber and Evan Wasner, believe companies with significant market power have taken advantage of the pandemic to actively raise prices beyond what increased costs might justify. Others, including Federal Reserve researchers, have noted rising profits, but maintain they are likely the result of companies anticipating higher costs.
The Numbers
Retail grocery profits were over 6% higher than costs in 2021, and over 7% higher in 2023. This is significantly above the previous high of 5.6% in 2015.
The grocery sector has become increasingly concentrated. The top four companies control over 30% of sales, double their market share from 30 years ago.
The FTC’s Findings
The Federal Trade Commission (FTC) report focuses on the grocery sector. It calls out profit increases as a primary factor in high food prices. “Some firms seem to have used rising costs as an opportunity to further hike prices to increase their profits… Larger retailers…were able to take more aggressive action to protect themselves,” researchers found.
Retail grocery profits were over 6% higher than costs in 2021, and over 7% higher in 2023. This is significantly above the previous high of 5.6% in 2015. The grocery sector has become increasingly concentrated. The top four companies control over 30% of sales, double their market share from 30 years ago.
The FTC says this casts doubt on claims that grocery prices are tied to rising costs. They urge policymakers to investigate. The report notes that grocery stores are using their power over suppliers to artificially keep prices high. “Walmart even tightened the delivery requirements its suppliers had to meet to avoid fines as the pandemic went on.”
While inflation rates have eased recently, corporate profits remain at record highs. This raises the question of whether inadequate competition is a factor in the economy.
“As supply chains normalize, some of these symptoms may subside, but the underlying issues remain,” warns the FTC. Margins are still “quite elevated”.
