Food price controls on the menu in the U.K.
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The U.K. is mulling voluntary price controls on essential food items, as the country grapples with sky-high inflation at the grocery store.
Why it matters: Persistent inflation is changing the conversation around price controls. Once waved off as an affront to capitalism, they're starting to look more appealing — especially to politicians who want to avoid headlines about people who can't afford to eat.
- Price controls emerged last year as a way to deal with rising energy prices.
Catch up fast: Food prices in the U.K. rose 19% over the last year, even as headline inflation cooled slightly, according to government figures out last week.
- That's the highest rate since 1977 when the nation's food inflation hit 21.9%.
The latest: Over the weekend, the Telegraph reported that aides for Prime Minister Rishi Sunak were talking to supermarkets about a short-term policy, similar to one enacted in France in March, in which retailers agree to use standardized prices on certain essential items like bread and milk.
- Officials are emphasizing that any kind of price caps would be voluntary.
- "This is about having constructive discussions with supermarkets about how we work together, not about any element of compulsion,” the U.K. health secretary told the BBC.
- That's distinct from the last time the U.K. put mandatory price controls on food — also under a conservative government — back in the 1970s in a move that's seen as a failure.
- Meanwhile, Hungary in April said it would force retailers to cut prices on 20 basic items.
State of play: Business groups condemned the idea, Bloomberg reported.
- “Rather than recreating 1970s-style price controls, the government should focus on cutting red tape so that resources can be directed to keeping prices as low as possible,” Andrew Opie, director of food and sustainability at the British Retail Consortium, told the news outlet.
- Yet, Brexit has added red tape to the process of buying food — one paper from the London School of Economics finds that the country's departure from its free trade pact is responsible for a third of food price inflation.
- "[W]hile there is clearly a legitimate role for price controls in situations where economies are experiencing huge supply shocks — notably in times of war — they are, by design, distortionary and should only be used in extreme circumstances," Capital Economics' group chief economist Neil Shearing wrote in a research note on Tuesday.
- "The current food price shock does not warrant such an intervention," he wrote, adding that food inflation will likely fall in the coming months as lower energy costs start to trickle through.
Zoom out: Controlling the price of food is much more complex than setting oil prices.
- The food sector is exceptionally diverse — filled with all kinds of foods at a multitude of price points. Take a category like bread — there's Wonder Bread and then there's organic whole wheat sourdough, among a litany of options.
- But plans that are limited in scope, like the one in France, might make sense, Isabella Weber, an economist at the University of Massachusetts, Amherst, told Axios earlier this month.
- That's in part because the traditional tool to fight inflation — where a central bank raises interest rates to cool demand — might be too blunt an instrument for tackling rising food prices, she said.
The bottom line: Central bankers can only cool demand for food so much, after all. People still need to eat.
