Are American consumers facing inflation and wage erosion because of price gouging? Or even "price gauging," as Kamala Harris accused retailers last week?

OMG. Kamala said "Price Gauging" instead of "Price Gouging"...

I get misspelling it, but how do you not realize you are saying the completely wrong word?pic.twitter.com/e0EzVRFeol

— Jeff Carlson (@themarketswork) August 16, 2024

What say the nefarious retailers who ruthlessly charge enough to barely cover costs and repay investors? "We're in a penny business," Target CEO Brian Cornell told CNBC's Squawk Box host Joe Kernen this morning. Kernen clearly agrees, noting that retailers across the board are working in a razor-thin margin environment already.

Cornell was delighted to report a 6% profit margin to investors, he explains, when so much of retail has even thinner margins:

In an interview on CNBC’s “Squawk Box,” the retail chief disputed campaign talking points accusing grocers of inflating prices. He said retailers have to be responsive to customers or risk losing business.

He was asked by CNBC’s Joe Kernen, who referred to comments by Democratic presidential candidate Vice President Kamala Harris and asked if Target or its competitors ever benefit from price gouging. Harris last week proposed the first-ever federal ban on “corporate price-gouging in the food and grocery industries,” saying some companies are charging excessively and fueling household inflation.

“We’re in a penny business,” Cornell responded, noting the small profit margins in the retail industry. He described the many places that customers can turn to check for lower prices or to find merchandise elsewhere, from going to stores to browsing on their phones to compare the prices of a gallon of milk at different retailers.

Have prices gone up? Yes. That's one measure of inflation, or rather two: the Consumer Price Index and the PCE Index, both of which measure price hikes at final sale. But we also measure it through the Producer Price Index, which measures inflation in all of the stages before final sales by retailers -- or in other words, the costs on which retail prices are calculated. And the PPI ran well over 9% throughout 2022 and far above the current 2% level in 2023. 

In other words, inflation impacted every step of the product and service chains. It had nothing to do with corporate greed at the final-sale level, especially with low-margin retailers such as department stores and grocers. Their costs rose dramatically, and so retailers either had to increase prices or close. 

That can actually be called "price gauging" rather than "price gouging," and it's a normal function of a competitive market. Too bad Kamala Harris appears entirely ignorant of free-market economics. And ignorant of how it's actually succeeding in keeping prices as low as they are, as David Harsanyi explains:

There isn’t a scintilla of evidence that “price gouging” — a conveniently elastic term, to begin with — exists. Big Grocery is one of the least lucrative big businesses in America with a profit margin consistently under 2 percent — in fact, this year it was 1.18, a figure that lands on the lower end of the historical profit spectrum. While there’s nothing wrong with making a healthy profit, consistent margins tell us that price spikes are propelled by inflation, not some insidious plot.

Until the government shutdown of the economy during the Covid pandemic, grocery prices had been low and dropping. Probably because “Big Grocery” is also one of the most competitive industries in the country, with numerous national chains, regional chains, higher-end markets, affordable big-box chains, and online competitors, including Amazon.

Yet, we’re supposed to believe that one day, just as overall inflation happen to hit a 30-year high, everyone in grocery business decided to get together and collude to raise prices in a manner that was consistent with overall inflation? They think you’re idiots.

Indeed. Unfortunately for Harris, that mainly exposes her own stupidity, as Reason's J.D. Tuccille explained on Monday:

A New York University Stern School of Business annual survey shows a net profit margin of 1.18 percent for retail grocery stores last year. That's down a bit from when the Biden administration took office (you can check annual data here). Kroger, the industry giant that is frequently portrayed as a greedy bogeyman, recently enjoyed a slightly higher net profit margin of 1.43 percent; over the last 15 years, its profits briefly reached as high as 3.02 percent in 2018. (The Cato Institute's Scott Lincicome does a good dive into food-industry economics on X.)

So much for Harris's deflection. But then there's her scheme for price controls to address the higher prices brought by government policy. Such controls have such a well-documented track record that they heap stupidity onto Harris's dishonesty. ...

"Inflation comes when aggregate demand exceeds aggregate supply," wrote economist John Cochrane of the Hoover Institution and the Cato Institute in a March piece for the International Monetary Fund. "The source of demand is not hard to find: in response to the pandemic's dislocations, the US government sent about $5 trillion in checks to people and businesses, $3 trillion of it newly printed money, with no plans for repayment."

In the end, though, Harris isn't selling an economic policy as much as she's selling a disastrous attempt to expand federal power over markets. Never mind that the emergency actions of the federal government over markets -- shutdowns,  interventionist mask/vaccine mandates, baseless "distancing" requirements, along with that firehose of free money -- created the inflation Harris proposes to solve with even more intervention. She's pandering to envy and resentment and hoping to deflect it from the real villains of inflation ... herself and Joe Biden. 

Let's hope the retailer class  keeps pushing back against it, but also all of the other stakeholders in free and orderly markets. The retailers will be the first up against Harris' wall if she wins, but they won't be the last.