Here’s what Costco is saying about inflation — and a membership fee increase

As the market obsesses about 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 warehouse retailer known for its competitive prices, seems as good as any to start. And the comments made by CFO Richard Galanti on its conference call suggest the Fed will still be in inflation-fighting mode for the rest of the year, though perhaps a pivot could come next year.

“We’ve seen minor improvement in a few areas,” said Galanti, according to a transcript of the call from S&P Global Market Intelligence. “But all in, pressures from higher commodity prices, higher wages and higher transportation costs and supply chain disruptions — they’re still present, but we are seeing just a little light at the end of the tunnel.”

For the fiscal fourth quarter ending August 28, Costco absorbed inflation of about 8%, compared to 7%-plus in the previous quarter.

“We’re seeing commodities — some commodities prices coming down, such as gas, steel, beef, relative to a year ago, even some small cost changes in plastics. We’re seeing some relief on container pricing. Wages are still the higher thing when we talk to our suppliers. And as we all know, wages still seem to be the one thing that’s still relatively higher. But overall, some beginnings of some light at the end of that tunnel,” said Galanti.

The supply chain was getting a little better, with Galanti noting the decline in spot container prices. “And then you’ll start to see it hopefully in some other contracts as they continue. No longer any big capacity issues or container shortages,” he said. Port delays have improved, he added. The one lesson the company drew, he told an analyst, was to try to spread out deliveries across different ports.

The operator of 838 warehouses worldwide was asked when membership fees will increase. The last three increases were made, on average, five years and seven months apart. That means, if Costco were to keep to that timetable, 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,” said Galanti. “And our view is, is we are confident in our ability to do so. And at some point, we will. But it’s a question of when, not if.”

Costco COST,
-1.20%
late Thursday reported earnings and revenue that came in ahead of Wall Street expectations. But the stock slipped 3% in premarket trade, and has slumped 14% this year.

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