Are grocery store prices going up? Via Investing.com

Following recent comments from key figures in both the retail industry and politics, the debate over price gouging in grocery stores has intensified significantly.

This issue was brought into the spotlight when Vice President Kamala Harris, who is running as the Democratic candidate for president, accused grocers of inflating their prices.

Harris proposed the first federal ban on “corporate price gouging” in the food and grocery industry. She also vowed to take action against “corporate landlords who unfairly raise rents for working families,” positioning herself as an advocate for consumer rights and affordability.

Target ( TGT ) CEO Brian Cornell was quick to respond to the allegations, saying that raising prices is nearly impossible in the highly competitive retail sector. Cornell’s stance reflects broader industry sentiment that retail is operating on thin margins, leaving little room for significant price increases without alienating customers. He pointed out that fierce competition among retailers keeps prices under control, countering the notion that grocery stores exploit consumers.

To understand price dynamics in the food sector, Yardeni Research analysts analyzed a useful measure – the ratio of the Consumer Price Index (CPI) for household food products to the Producer Price Index (PPI) for supermarkets and other grocery stores.

This ratio effectively serves as a proxy for profit margins in the food industry, as the CPI measures the prices paid by consumers, while the PPI reflects the prices businesses receive.

Since data began in 2000, this ratio has been on a downward trend, signaling that grocery store profit margins have been shrinking. Although the ratio flattened during the pandemic, it has since fallen to new lows, Yardeni notes, suggesting that grocery stores are not significantly benefiting from price increases.

Other evidence from the S&P 500 merchandise retail industry, which includes major retailers such as Costco (NASDAQ: ), Dollar General (NYSE: ), Dollar Tree (NASDAQ: ), Target (TGT), and Walmart (NYSE: this conclusion. .

This industry, where many companies generate a substantial portion of their revenue from food sales, has seen its expected profit margin rise only slightly, from 2.6 percent during the pandemic to 3.2 percent today.

“It’s not a big increase or a big margin,” analysts commented.

Moreover, recent financial reports from leading retailers indicate that consumer spending remains robust, complicating the narrative that grocery stores are raising prices excessively.

For example, Target recently raised its full-year profit guidance and reported its first quarterly comparable-store sales increase in a year. This positive performance led to a nearly 15% increase in the company’s share price, underscoring that while consumers may be paying more, they are still willing to spend.

Walmart CEO Doug McMillon echoed a similar sentiment, noting that he doesn’t see a weaker consumer base.