Wayne O'Leary

Greedonomics at the Supermarket

America’s literal hunger games are proceeding apace. General inflation is trending down, though still exacting a toll on consumers, but there is one aspect of it, food inflation, that remains stubbornly hard to budge.

The latest figures (for July) show inflation dipping to 3.2% on an annual basis, still higher than the Federal Reserve’s desired target of 2%, but appreciably better than the 9.1% reached in July of last year, the highest year-on-year level since 1981. The encouraging decline comes with a caveat; it doesn’t factor in so-called core inflation, which includes volatile food and energy prices, and it therefore remains stuck at 4.7% for the year overall.

Food, especially, is a major concern; the best that can be said by observers is that some food items “fell slightly” over the summer, while others continued on their upward trajectory. Nevertheless, the White House was mildly euphoric; the president hailed the positive news as “Bidenomics in action,” causing the stock market to soar. The S&P 500 recorded its highest close in 15 months in mid-July.

One development went largely unnoticed, however. Real wages (wages adjusted for inflation), which have lagged throughout the pandemic period, increased just 1.1% for the year, according to data released in July by the Bureau of Labor Statistics; average compensation inched up barely 0.3% for the month.

More bad news: The financial-services firm Glenmede Investment Management reported in May that US households in the bottom one-quarter of income would exhaust whatever was collectively left of their stimulus-related pandemic-era savings by summer. And the Federal Reserve’s annual survey of Americans’ financial well-being, also released in May, revealed that 35% felt worse off than a year earlier, the highest proportion in a decade. More than that, 33% reported their incomes rose in the past year, but those gains were wiped out by rising prices.

For most people, the chief expense they face day in, day out is food, the main driver of inflation since the pandemic. Beginning in December 2020, US food costs have risen virtually every month regardless of general inflation. Often, those dinner-table costs have outstripped everything else percentagewise. In April of this year, the Consumer Price Index (CPI) reveals, overall inflation reached 4.4% year-on-year, but annual food inflation peaked at 7.7%. The next month, basic inflation was 4.0%, but food inflation spiked at 6.7%.

Who or what is responsible for the price upsurge? is the question of the hour. The usual suspects include the war in Ukraine (Ukraine being a major grain supplier), the spending impact of the American Rescue Plan (the $1.9 trillion pandemic-relief program), supply-chain snarls, the lingering impact of the pandemic on labor, fuel and transportation costs, and the weather, specifically droughts in the Western US.

The Biden administration is particularly insistent that the cause is “Putin’s price hike” (conveniently nondomestic), produced by his Ukrainian invasion. But a majority of progressives, as well as a plurality of Americans, point the finger at the corporations. In a May 2022 poll commissioned by the New York Times, 40% of all respondents blamed the corporate sector “a lot,” and another 38% blamed it to some degree.

As will be seen, the public is onto something, but the Biden White House is strongly reluctant to adopt its viewpoint, much less act on it. The president apparently suffers from a career-long bias in favor of the unfailing good intentions of corporate America. He’s wrong. Corporations have clearly used the inflation crisis to their advantage.

The Producer Price Index reports the rate companies paid for goods and services fell from 11.7% to 2.3% between April 2022 and April 2023, but those companies maintained their price levels throughout. The average member of the S&P 500, say data analysts from the investigative research firm FactSet, increased its net profit margin during the first half of 2023, a factor contributing to inflation that nevertheless kept stock prices from falling, a cause of celebration for investors.

The stock market as a whole has been flying high; it gained 35% in 2021 and recorded the widest profit margins since 1950. Food stocks set the pace, especially after commodity prices began rising sharply at mid-year (beef: up 20%). Remarkably, the world’s major companies have straightforwardly admitted they have reinforced or raised prices to protect profits and plan to continue doing so.

The leading food producers are no exception. The big three, Nestlé ($92 billion in annual revenues), PepsiCo ($67 billion), and Coca-Cola ($37 billion), have unashamedly implemented price increases since 2020 that pushed their annual profits into the 15%-20% range. Conagra Brands ($11 billion), America’s premier packaged-food supplier and ninth on the global Big Food list, has struggled along by consistently pricing its products above prevailing inflation rates to cushion its profit margins.

Unsurprisingly, the production costs faced by corporate food producers are not an issue. According to the US Department of Agriculture (USDA), they are expected to rise just 4.1% in 2023, a slower pace than a year ago, while overall retail food prices are projected to rise as much as 5.8% for the year, including 4.9% for foodstuffs purchased to prepare at home. The USDA does expect consumer price rises to decelerate in 2024, but not to the point of actually declining.

The simplest way to evaluate food inflation is to compare accelerating costs with consumer incomes and pay raises. Anecdotal evidence suggests food shoppers now pay a third more on average than before the pandemic, money that lost over time can’t be recovered, even if prices level off; furthermore, earnings are not keeping pace. From May 2021 to May 2022 alone, CPI-measured supermarket prices rose 10.1%. Wage inflation? The Labor Department calculates real hourly pay actually dropped 2.7% over roughly the same period.

The problem — in this case, President Biden’s — is not that the president caused food inflation, but that he’s not addressing it, instead leaving the issue to the Fed, as mainstream politicians have done for years, hoping against hope that its interest-rate hikes will do the trick and take him off the hook.

In Europe, where they’re fighting the same battle, governments have called the situation what it is — profiteering, a factor that adds anywhere from 10% to 20% to retail food costs. There, corporate prices are being capped, and tax penalties are under consideration. It’s one obvious answer to greedonomics.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, October 1, 2023

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