Question: Can you actually prove there was “no widespread corporate price gouging”? I’m having trouble wrapping my head around like, Kellogg’s, grocery prices quadrupling in some cases.
Overview
There wasn’t widespread corporate price gouging, which is illegal and has been prosecuted in isolated cases, mainly among small companies. Price rises primarily stemmed from supply and demand dynamics.
Supply issues started with the 2019 drought in Taiwan, which disrupted microchip production and affected various goods like cars and electronics. Climate events like Hurricane Ida caused further supply disruptions, driving up prices of materials like plywood and drywall. Meanwhile, pandemic-era stimulus fueled demand, shifting the demand curve itself. Increased consumer demand led to higher profits, especially in sectors like oil and gas. Government intervention in market pricing could worsen outcomes for both the environment and the economically vulnerable.
Speaking as an independent economist, it’s clear that the dynamics of corporate profits, consumer demand, and energy policy require a level-headed analysis. The trend in corporate profits has been especially pronounced in industries like energy, where high demand and constrained supply have allowed for increased profit margins. However, the deeper issue lies in mass consumption patterns and consumer demand. The reliance on energy and petroleum products not only drives up prices but also intensifies climate change, creating a feedback loop: as energy use increases, so do environmental impacts, which in turn amplify the demand for energy. This escalating cycle adds both economic and environmental challenges.
The solution, from a free-market perspective, is to reduce fossil fuel consumption rather than blaming suppliers. Boycotting fossil fuels is an effective personal strategy.
Macroeconomics
It is complex issue. Basically, price gauging is against the law and has been. I remember in the 70’s when companies were prosecuted for price gauging during the oil embargo. The most recent cases of price gauging occurred at the start of the pandemic and were related to masks and hand sanitizer. These cases were also prosecuted. What happened with Kellogg’s, eggs, and chickens was not price gauging. This was the law of supply and demand. Many farm products were severely impacted by climate and disease on the supply side. Millions of chickens were culled due to bird flu and that was just in Lancaster County resulting in a spike in prices as well as shrink inflation in the size of my rotisserie chickens. All grains were impacted by climate disasters worldwide as well as the war in Ukraine. The droughts and fires in Texas had a significant impact on beef prices. Chocolate prices went up 400% due to drought followed by floods in Africa. On the demand side, consumers spent massive amounts of borrowed money from the government. Not only did this push prices up in the short term, it also resulted in massive government deficits. This happened mostly under Trump. Then, Biden borrowed trillions of dollars for both personal stimulus and infrastructure pushing demand even higher. Both administrations led to massive government debt. This supply and demand worked opposite on interest rates. There was little demand for lending at low interest rates at the same time there was a massive amount of government debt added to the supply of bonds, bills, and notes. The rise in interest rates was passed through to consumers, as well. The end result is the free market behaving exactly as it should. Given the proposed Trump policies you should expect things to get worse, much worse. I’ve written a paper to help people prosper during our decline as this is the best you can do for yourself titled Economic Outlook 2025 – 2035.
Microeconomics
The inflationary pressure on Kellogg’s breakfast cereals can be attributed to a combination of rising costs across several factors:
- Grain Prices: Increased costs for grains like corn and wheat, driven by demand fluctuations and climate impacts like droughts, raised raw material expenses.
- Sugar Prices: Rising sugar costs, due in part to global supply chain issues and high demand, affected the cost of sweetened cereals.
- Energy Costs: Higher energy prices, including those for fuel and electricity, made production and distribution more expensive.
- Labor Costs: Wage increases, driven by inflation and labor shortages, affected both production and grocery store wages, adding further cost pressures.
- Climate Change: Extreme weather events disrupted supply chains and reduced crop yields, which tightened supply and raised costs for key ingredients.
- Global Supply Chain Disruptions: COVID-19 and other global events strained supply chains, leading to increased shipping and logistics costs.
Summary
These cost pressures have led companies like Kellogg’s to raise prices. Many wage contracts, which increase by 10-14% annually over 5-7 years, mean that certain goods and services will likely continue to face inflationary pressure, even as other prices stabilize. Additionally, insurance costs — particularly in areas prone to climate-related disasters — are expected to rise annually, impacting crop, property, real estate and transportation insurance premiums indefinitely. Since inflation can create a feedback loop—especially through factors like energy, wage increases, government spending, and rising interest rates—it is expected to remain a persistent, “sticky” issue in the long term.