Here's what Costco says about inflation — and membership fee increases

With the market obsessing over inflation and what would cause the Federal Reserve to step off the gas pedal, it’s worth taking a look at what some companies are saying about it.

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

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

For the fiscal fourth quarter ending Aug. 28, Costco took in inflation of about 8%, compared with more than 7% in the previous quarter.

“We’re seeing commodities — some commodity prices are down, like gas, steel, beef, compared to a year ago, even some small changes in plastics prices. We are seeing some relief in 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 only thing still relatively higher. But overall, there are some beginnings of light at the end of this tunnel,” Galanti said.

The supply chain is improving a bit, with Galanti noting the drop in spot container prices. “And then you’ll start to see it hopefully in some other contracts as they go along.” There are no longer any major capacity issues or container shortages,” he said. Port delays have improved, he added. The only lesson the company has learned, he told an analyst, is to try to spread shipments across ports.

The operator of 838 warehouses worldwide was asked when membership fees would increase. The last three increases have been made over an average of five years and seven months. That means if Costco sticks to that schedule, there could be a fee increase in January 2023. “Now, I’m not guessing it’s January ’23. I’m just saying it’s not there yet anyway,” Galanti said. “And our view is that we’re confident in our ability to do that. And at some point we will. But the question is when, not if.”

Costco
PRICE,
-1.20%

reported late Thursday earnings and revenue that beat Wall Street expectations. But shares were down in after-hours trading and have tumbled 14% this year.

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