Corporations are keeping food expensive because, well, they can

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In the three years since the pandemic took hold in the United States, the economy has whipsawed ways that academics are still trying to understand.

But grocery prices have been on a relentless hike — and the peak may still be miles away, my colleague Danielle Wiener-Bronner writes.

Here’s the deal: Even though ingredients have gotten cheaper over the past year, food producers aren’t budging. The reason: Meh, why would they?

To be sure, food manufacturers have to factor in costs of labor and transportation, which remain elevated compared with a few years ago. But at the end of the day, they’re not lowering prices because they don’t need to. Because, surprise, they make more money that way.

When inflation soars the way it has since 2021, it’s not unusual for big corporations of all stripes to use the moment to raise prices.

“Companies view these as occasional opportunities, and they don’t want to miss out,” Jean-Pierre Dubé, a marketing professor at the University of Chicago Booth School of Business, told Danielle.

Between 2022 and 2023, groceries got 11.3% more expensive, for a variety of reasons.

Take eggs, for instance.

The cost of food is down, but grocery bills are still up. Here's why

The price we pay at the store for eggs went up nearly 140% between 2021 and 2022, then another 70% last year, thanks to a devastating avian flu, higher feed and transportation costs, and — not least — producers jacking up prices to lock in profits. (The price surge is so, um, egg-regious that lawmakers are calling for an investigation into possible price-gouging. Fowl play, you might say? (I’m sorry.))

Anyway, it isn’t just food companies taking advantage of the inflationary moment. But food is where most Americans feel the pain, because while you might forgo a new couch or car or dishwasher, everyone has to eat.

Many food companies are forecasting that they might slow down or pause price increases — but not lower them, Danielle explains. That’s because pricing is “sticky.” We get used to paying more, and over time we hardly notice it.

“There have been supply chain pressures, and there have been commodity cost increases. But [companies] have, I think, taken price increases that exceed that,” said Mark Lang, an associate professor of marketing at the University of Tampa who specializes in food marketing. “They are, to me, absolutely profit-taking.”

Companies are maintaining elevated prices, or continuing to increase them, at a time when many Americans are already struggling to pay for food, especially as pandemic-era food stamp benefits expire.

“This kind of activity, in a big picture way, reduces the standard of living for the country,” said Lang.

Will prices ever come down?

Eventually, yes … A bit.

Some items, like lettuce and tomatoes have already gotten less expensive in the grocery store, says Tom Bailey, a senior consumer foods analyst at Rabobank. (Great news for Americans, who famously love salad…)

Bailey added that if and when companies moderate pricing, they’ll have to do it carefully.

“If you start dropping prices, it can undermine the value proposition that brands and manufacturers have built up over the years with their consumers,” he said. Lower prices could, for example, make people think food quality has gone down — or make them think they were paying too much in the first place. (Because, of course, they were.)

NUMBER OF THE DAY

10.8 million

The number of job openings in the United States fell to 10.8 million in January, down from 11.2 million in December. That signals a very slight chill in the labor market, which is still running too hot for the Fed’s comfort.

That figure, part of the closely watched Job Opening and Labor Turnover Survey, came slightly higher than economists had expected.

The data came out just as Fed Chairman Jay Powell began his second day of congressional testimony, in which he underscored the Fed’s view that interest rates will likely have to stay higher for longer to tame inflation.

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