This Massive Retailer Sees Inflation Easing: Is The Fed Listening Ahead Of March Rate Decision?

Costco Wholesale Corporation COST surprised investors on Thursday by coming out with an earnings report that beat street estimates.

The company's strong results make it an outlier in the struggling retail sector. 

Yet, these details from the earnings call might not be the most surprising data put out by the company during its earnings call. 

Uniquely positioned to analyze consumer prices up close, Costco's chief financial officer said that inflation is easing consistently from their point of view.

"We continue to see some improvements in many items. Commodity prices are starting to fall not to back to pre-COVID levels and some examples, but continue to provide some relief, things like chicken, bacon, butter, steel, resin, nuts," said Costco's CFO Richard Galanti.

As a wholesaler, Costco and other retailers like Walmart WMT and Kroger KR have a unique view into the course of inflation in the U.S.

While the Fed has been consistently raising interest rates throughout 2022 and into 2023, macroeconomic data continues to produce numbers that are not falling in line with the agency's goal to bring inflation down to 2%.

This week, the job market again proved to be increasingly resilient to monetary tightening, making the possibility of a Fed hike in March ever more likely.

Yet in Thursday's earnings call, Galanti shared his unique perspective on inflation, saying that "it continues to seem to improve somewhat."

By the end of the company's last fiscal Q4, which ended in August, its own estimated year-over-year price inflation was 8%. Official figures from the Labor Department put yearly inflation during that month at 8.3%. Costco's fiscal Q1 results, ended in November, put yearly inflation that quarter at between 6% and 7% for the company.

For Q2, the company estimates that the equivalent year-over-year inflation number has come down to the 5% to 6% range "and even a little lower than that toward the end of the quarter according to the buyers." 

Those projections mark a substantial difference with official figures, the latest of which show an increase of 6.4% in consumer prices between January 2022 and January 2023. The Fed will announce its target for short-term interest rates on March 22 at 2p.m. ET.

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