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Amidst Inflation Scare, Price War intensifies between Costco, Target, Walmart

You're not imagining things. Stuff is a little bit cheaper at Costco, Target, Walmart, and Kroger this year.

Bond yields jumped today over fears of a wage-induced bout of inflation. Meanwhile, price wars have broken out.

  • Costco: "Price is at the top of our list," Costco chief financial officer Richard Galanti told investors on Friday. "When prices are going down...we want to be the first to go down."
  • Walmart: "Price still matters. There are a lot of Americans that are counting every penny and every dime," CEO Doug McMillon said at Walmart's shareholder meeting last week. Walmart's prices fell close to 4% from February through April. Cheerios fell by more than 40%. Walmart's prices for nationally-branded food were actually lower than both Dollar General and Family Dollar's.
  • Target: "We believe that consumer perception of value at Target has not reflected how low our out-the-door prices are," chief executive Brian Cornell told investors last year. Cornell has guided the company through a $7 billion investment phase, including slashing prices, to firm up sales.
  • Kroger: Kroger isn't spoiling for price war, but it's prepared to fight. "We're not going to lose on price, but we're not out there trying to lead the market down," CEO William McMullen said to investors in March. Kroger has "felt the negative consequences of a resurgent Walmart more than anyone," analyst Mushkin said.

Competition is Building

Competition is up and Amazon is at the center of it with its purchase of whole foods. Half of Costco's sales come from food. Groceries make up 56% of of Walmart sales.

Food is a Bargain

Food is a bargain and has been for something like forever, despite all the whining from people who don't have a freezer and don't know how to shop.

Apologies offered to vegetarians who insist on organic. They may legitimately see things otherwise.

This past weekend, I got boneless whole pork tenderloin at $0.98 a pound and prime T-Bone steaks at $5.88. Both had limits but my wife and I each took a cart and checked out separately.

This was a grand opening at Mariano's, owned by Kroger. I am unsure if this was local pricing or national.

I keep repeating myself, but if you think food inflation is high, then get a freezer and learn how to shop.

Real World Inflation

Food aside, in the real world, inflation is mostly understated.

Those paying for their own medical insurance tell me their costs are up $2,000 or more a year!

Home prices are not in the CPI. That alone causes a huge "inflation" understatement.

Trump policies do not help one bit. Tariffs will increase prices, temporarily. Everything the government touches disrupts prices.

Property taxes in Illinois are out of sight, but essentially unmeasured.

Inflation is personal and largely understated.

Wage Inflation?

Wages are up 2.6% from a year ago in nominal terms but only 0.3% real terms.

Click on the link if you want to understand what's really going on.

Mish a New Inflationista?

No. My stance has not changed. Rather, people only hear what they want to hear.

My definition of inflation is as follows "Inflation is an increase in money supply and credit, with credit marked to market".

My definition is not easily measurable, but neither is the CPI.

There is no such thing as an average basket that makes any sense, especially when the basket excludes home prices and assets.

Based on my definition, inflation is high and rising even if we cannot put a specific value on it.

Looking Ahead

When the next recession hits, asset prices will collapse and loans based on those assets will sink, if not collapse. Consumer prices will likely follow.

Once again, this is how the real world works in a fiat credit-based system.

The Austrians, in general (not this one), made a huge mistake in believing the expansion of money and credit would lead to soaring consumer prices. Many expected hyperinflation.

However, the Austrians are correct in that the seeds of demise have been planted.

Meanwhile, the monetarists at the Fed and the Keynesians who seek still more stimulus are oblivious to the entire discussion.

Asset bubbles are very inflationary when they are in progress. The Fed has blown a doozie. And trade wars are inflationary until trade collapses.

No Economic Benefit to Inflation

The BIS did a historical study and found routine price deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

​CPI or PCE deflation is not to be feared.

More precisely, price deflation is a benefit. Falling prices increase purchasing power by definition and thus raise standards of living.

​It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Unintended Consequences

If you are seeking one single compelling reason that inflation (as defined by the Fed and the academic illiterates) is not about to soar in 2018, here it is: a massive debt overhang.

Debt Deflation Coming Up

As a direct result of the Fed's total incompetence in understanding inflation, bubbles are readily apparent in equities, in junk bonds, and in Bitcoin speculation.

Another debt-deflation bubble bursting episode is coming up. All it takes is an economic slowdown or a change in attitudes of greater fools willing to chase the market higher and higher.

​Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Treasury yields will collapse when the bubble bursts.

Mike "Mish" Shedlock

That's unfortunate unless you are very well-off. Because when you do sign-up, they will add a permanent penalty that will stay on for your life based on the # of months you missed.

I go through every package and pick out the best ones. Few people know that a T-Bone or Porterhouse is a combination of a Strip Steak and Filet Mignon (the smaller part). I look for the most Filet and buy those. Porterhouses are "supposed" to have more Filet, but in practice they seldom do. The Filet is cut out and they label the damn thing "Porterhouse" anyway.

In the UK, all you have to do to get cheaper stuff is check out which chains are going into administration or taking out a CVA to survive, then wait for the beancounters to flog everything off for what they can get. There are so many boarded up shops the window cleaner uses a sander. House of Fraser have announced today they are closing 31 department stores (including Oxford Street) due to lack of viability. Poundworld have gone under today but I can't see any major savings to be had there.

Medicare is pay as you go. So if you don't have any health issues, you are not costing Medicare or tax payers anything anyway. But if you get cancer, you have 3 choices: sign up for Medicare (let the taxpayers/bondholders pay), pay out of pocket, or let the end come naturally and leave the funds for the kids. I certainly respect any of those choices.

So when the next liquidity crisis happens because of inability for the market to price bonds of all kinds what happens ? We are literally months from the next banking crisis. I see people who were children in 2008 celebrating that their 401ks are doing well. Oh what realities they have in store over the next decade.

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