An occasional review of technology, markets, and ideas.

Inflation Heuristics

Want a simple heuristic to gague whether we have persistent inflation? Look no further than the price of the $1.50 Costco Hot Dog combo.

In April, the CPI rose 4.2% relative to April 2020. Used car prices were up 21% year-over-year and rose 10% in the month of April alone.

Housing was not immune with the Case-Shiller Index hitting an all-time high. In a recent WSJ article they point to record low mortgage rates and supply constraints (in Austin they report that year-over-year inventory decline topped 70%) are helping fuel these price increases.

While the Fed talks about "inflation expectations" and rigorously measures this through derived metrics such as the 10-Year Breakeven Inflation Rate, inflation is largely a function of expectations and so this Google Trend view of how often people are searching for the term "inflation" is useful information to understand.

One other rough heuristic to try and tell whether we have persistent inflation is to see whether Costco raises the prices of their hot dogs.

Why Costco hot dogs?

Here's Costco CEO Craig Jelinek recalling when he proposed raising the prices of the $1.50 hot dog + soda combo to Costco Co-Founder Jim Sinegal:

“I came to (Jim Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends.’ And he said, ‘If you raise the effing hot dog, I will kill you. Figure it out.’ That’s all I really needed. By the way, if you raised (the price) to $1.75, it would not be that big of a deal. People would still buy (it). But it’s the mindset that when you think of Costco, you think of the $1.50 hot dog (and soda). What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we’ve opened up another plant in Chicago. – Costco CEO Craig Jelinek on Shareholders, and Hot Dogs

In other words, if Costco raises prices, that's a big deal.

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Jamie Larson