While the Holiday season is a time of celebration for people across the country, the increased spending can also be a painful reminder that effects from the highest inflation rates in years persist. Despite the previous year’s slowdown, food inflation still hurts consumers during the holiday season, especially compared to pre-pandemic levels. Unfortunately, government policies hinder efforts to reduce food prices rather than help.
The 2023 New York Farm Bureau’s Market Basket survey found the foods comprising a traditional Thanksgiving dinner have seen a 6% increase since last year in New York markets. While it is an informal survey, it demonstrates that consumers are paying more than last year.
Beyond New York, nationwide costs have experienced a slight 4.5 percent decline. While any reduction is a step in the right direction, the slight decrease in recent years isn’t enough to overcome the high increases in food prices from 2022. This means that food prices are still significantly above what they were in 2021.
Unfortunately for policymakers, the causes of increases aren’t straightforward. Only 14 percent of the total food price can be attributed directly to agricultural costs. Food prices are influenced by many interconnected factors, such as high labor costs and other less obvious factors, such as the war in Ukraine , which disrupted wheat exports. While the causes are complex, the effects are more easily understood. Increases in food prices cost the average American more money and increase food insecurity for people with lower incomes.
In addition to aftershocks of the pandemic and factors beyond anyone’s control, flawed government policies drive up costs when the dollar loses its purchasing power.
One influence on food prices is the cost of energy. Energy is a vital input of any supply chain, including agriculture. Government policies that impede energy production, such as restrictions on oil and natural gas leases on federal lands and canceling the Keystone XL Pipeline, have increased fuel prices. From fueling farm machinery to transporting goods to markets for purchase, increased costs of these stages increase the cost of end products.
The relationship between food prices and energy also goes in the other direction. Crops are often diverted from the food market to create biofuel, reducing the supply and creating upward pressure on food prices. The government incentivizes this diversion through incentives that distort normal market behavior.
Energy isn’t the only area where government policies impact pricing. The current regime of antitrust enforcement risks punishing market efficiencies that could lower consumer costs. For example, the Federal Trade Commission (FTC) delayed approval of the merger between Kroger’s and Albertsons grocery stores.
Mergers have a history of increasing efficiency for grocery stores, as shown by Amazon’s acquisition of Whole Foods. Amazon lowered prices at the notoriously expensive Whole Foods by moving towards private brands and incorporating Prime into the shopping experience.
As for Kroger’s, the merger would allow for cheaper manufacturing costs which the company has stated they plan on passing a portion of those savings to customers. Whether the deal will be approved remains to be seen, but if the FTC were to challenge the merger, it would punish efficiency when consumers are already feeling their wallets strained.
While government policies have tried to contain inflation, often, they have been getting in the way more than helping. Food prices and overall cost of living don’t occur in a vacuum. Government policies that limit supply and scale work to increase costs for American consumers.
Trey Price is a technology policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information, visit https://www.theamericanconsumer.org/ or follow us on X @ConsumerPal.