Are Grocery Stores Price Gouging?

Today, Target CEO Brian Cornell said that there's no room for price gouging in a super competitive business like retail. He was responding to accusations by Vice President Kamala Harris that grocers are inflating their prices. As the Democratic candidate for President, she proposed the first ever ban on "corporate price-gouging" in the food and grocery industry. She also pledged last Friday to come after "corporate landlords that unfairly raise rents on working families."

The ratio of the CPI food at home to the PPI supermarkets & other grocery stores has been on a downward trend since the data started in 2000 (chart). The CPI measures prices paid by consumers, while the PPI measures prices received by businesses. So the ratio is a proxy for the profit margin of the grocery industry. This ratio flattened during the pandemic, but has moved to new lows since then.

We can calculate the profit margin of the S&P 500 Merchandise Retail Industry, which includes Costco, Dollar General, Dollar Tree, Target, and Walmart (chart). Three of them also sell lots of groceries. To calculate the forward profit margin, we divide the industry's forward earnings by its forward revenues. Since the pandemic, it has increased from 2.6% to 3.2% currently. That's not much of an increase or much of a margin.