Here’s what Costco says about inflation — and the membership fee increase

Here’s what Costco says about inflation — and the membership fee increase

As the market obsesses over inflation and what would cause the Fed to step off the gas pedal, it’s worth considering what some companies are saying about it.

The view from Costco Wholesale, the retail warehouse known for its competitive prices, looks just as good to begin with. And comments made by CFO Richard Galanti on his conference call suggest the Fed will still be in inflation-fighting mode for the rest of the year, though perhaps a switch could come next year.

“We’ve seen a little improvement in some areas,” Galanti said, according to a transcript of the call by S&P Global Market Intelligence. “But overall, the pressures from higher commodity prices, higher wages and higher transport costs and supply chain disruptions – they’re still there, but we’re seeing some light at the end of the tunnel.”

For the fiscal fourth quarter ended Aug. 28, Costco absorbed inflation of about 8 percent, compared with 7 percent plus in the previous quarter.

“We’re seeing commodities — some commodity prices are down, like natural gas, steel, beef, compared to a year ago, and even some small cost changes in plastics. We are seeing some relief in container pricing. Wages are still the top thing when we talk to our suppliers. And as we all know, wages still seem to be the only thing still relatively higher. But overall, some beginnings of some light at the end of this tunnel,” Galanti said.

The supply chain was getting a little better, with Galanti noting the drop in spot container prices. “And then you’ll start to see that hopefully in some other contracts as they go on. There are no more large capacity issues or container shortages,” he said. Delays at ports have improved, he added. One lesson the company learned, he told an analyst, was to try to spread deliveries across different ports.

The manager of 838 warehouses worldwide was asked when the membership fees will increase. The last three increases were, on average, five years and seven months apart. That means if Costco were to stick to that schedule, there could be a fee increase in January 2023. “Now I’m not suggesting it’s January ’23. I’m just saying it’s not there yet anyway,” Galanti said. “And our view is that we are confident in our ability to do that. And at some point we will. But it’s a matter of when, not if.”

Costco COST,
late Thursday reported earnings and revenue that beat Wall Street expectations. However, the stock slipped in after-hours trading and is down 14% this year.

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