Inflation and Accelerating Prices Will Impact Costco Products

EDITOR NOTE: In its last quarterly earnings report, Costco was able to top Wall Street estimates. As inflation impacted the company’s input costs, Costco was able to perform a near-virtuosic balancing act in minimizing its costs in order to keep its customers satisfied. But if inflation either sustains accelerating prices or accelerates the upward surge, their low prices may soon be a thing of the past. We’re grateful for grocery stores and supermarkets that are able to give us a disinflationary experience amid rising inflation. Obviously, we can’t rely on their smarts and skills to shield us from the inevitable drain on our purchasing power that the Fed and the government have somehow sold to the public as economic growth. Instead, we rely on physical gold and silver to shine the light on truth as we muddle through obfuscated prices in a manipulated economy. 

Don’t tell Costco executives that inflation is low.

The big-box club chain said it’s been seeing accelerating prices across a range of products, including shipping containers, aluminum foil and a 20% spike in meat prices over the past month.

“Inflationary factors abound,” CFO Richard Galanti said on the company’s fiscal third-quarter earnings call Thursday.

“These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays … increased demand in various product categories some shortages, various shortages of everything from chips to oils and chemical supplies by facilities hit by the Gulf freeze and storms and, in some cases, higher commodity prices,” he added.

Costco reported a profit of $2.75 a share for the period, well above Wall Street estimates. It also saw revenues of $45.3 billion that also beat the Street, which had been looking for $43.6 billion.

Beneath those numbers, though, was a story of how higher prices across the board impacted the chain.

On the plus side, there was a boost from gas inflation as prices at the pump have soared about 30% nationally this year. In other cases, it wasn’t so simple.

Like other companies, Costco wrestled with passing costs onto customers. The firm expects there could be some margin pressures, though the degree remains to be seen and there haven’t been any significant impacts so far.

Economists largely see the current spate of inflation — one closely followed gauge released Friday estimated the annual pace at 3.1% — as temporary. They list many of the same factors as Costco executives, mainly a string of supply chain issues that have caused spikes in products core to the U.S. economy and household consumption.

Galanti cited price increases as high as 8% and cited goods including pulp and paper, an assortment of plastic products as well as soda and cheese. Some apparel items saw price hikes of 3% to 10%.

Overall, he said the company has gone from seeing inflation in the 1%-to-1.5% range in March to 2.5% to 3.5% today.

“Some items are up more and some items, the sale prices haven’t yet changed. And some items are even down a little bit,” Galanti said. “We think, again, we’ve done pretty well in terms of controlling that as best as we can, but the inflation pressures abound.”

Costco has worked with its supplies to keep a handle on price pressures. But Galanti conceded that “some of [inflation] has passed through.”

In the future, he said items like the warehouse’s $4.99 rotisserie chicken and $2.99 40-pack case of water could be impacted.

Original post from CNBC