1% grocery tax is the least of the state’s food cost problems

Cartons of eggs sit on the shelf at Gordon Food Service in Joliet. A national shortage of eggs has cause sharp rise in egg prices.

The Daily Herald’s tax watchdog, Jake Griffin, wrote last week that the state’s 1% sales tax on groceries is about to resume after a yearlong suspension of it ends on July 1. An addition to grocery bills is not what a lot of Illinoisans need right now, but the tax itself really is the least of the food cost problems.

As Griffin noted, a U.S. Department of Agriculture report last month showed food purchased at supermarkets cost 7.1% more in April than a year before. That increase was 11.4% between the end of 2022 and the end of 2021. The online publication Vox reported that the cost of white bread increased 22% from January 2020 to January 2022, per the U.S. Bureau of Labor Statistics. But we probably don’t have to tell you about rising prices.

What nobody talks about much – certainly not food corporations or even grocers – is that prices may, at least for now be being kept higher than they need to be.

“Inflationary pressures,” like supply chain disruptions, higher labor costs, transportation delays or simply higher commodity prices, have been cited as reasons to raise prices. But many of those pressures have eased, especially the commodity prices, which CNN reported, citing the USDA, were down in March from their May 2022 peak. Yet some food corporations have kept prices high simply because they can. “When costs change, especially when costs change in a very publicized way,” it’s not unusual for companies to use the moment to raise prices, Jean-Pierre Dubé, of the University of Chicago Booth School of Business, told CNN. Corporations then can boost profits.

Their leaders sometimes admit as much. Gary Millerchip, CFO of Kroger – owner of Mariano’s – in November 2021 told analysts the company was “very comfortable with our ability to pass on the increases that we’ve seen at this point.” That’s because people still have to buy groceries and they may see the higher prices as inevitable.

Eventually, assuming inflation continues to wane, competition and market forces should take over and prices become stable or start to decline, but for now, some companies have been comfortable to let customers’ expectations of higher prices slow the pressure to decline, allowing profits to grow in spite of higher costs the companies faced.

Kroger’s operating profit grew to $4.1 billion in its fiscal 2022 from $3.5 billion in its previous year. Similar profit boosts have been reported for other major food companies like General Mills, Tyson Foods and Conagra.

Meanwhile, the U.S. Bureau of Labor Statistics reported the average price of a dozen eggs at $3.27 in April, though Urner Barry, an independent price reporting agency, listed the wholesale price at just $0.94 last month, CNN reported.

Some Republican legislators, including state Sen. Don DeWitte of St. Charles, would like the grocery tax permanently repealed, because “Illinoisans have seen little to no relief at the grocery store,” he told Griffin. But the grocery tax amounts to only $1 for every $100 spent.

The larger question is, can state and federal legislators do anything to curb profit-taking, including by reducing the power of the dwindling number of giant corporations controlling the industry? And what can they do to help the economy and curb the inflation situation? Neither killing nor keeping the grocery tax is likely to make much of a difference.

The Daily Herald