Thursday, May 25, 2006

Don’s CPI


Don, my car guy, has a pretty good pulse on the economy.

First of all, he fixes cars—and that’s as basic a consumer spending item as it gets. Second, he employs people, so he knows what the labor market is doing. Third, he buys a lot of stuff—auto parts, certainly, but also utilities, office supplies, and new equipment.

So when I get my car fixed, I like to ask Don what he's seeing.

Now, this may come as less of a shock to bond traders than before the last CPI number was released, and it may not matter to whatever low-level functionary in the statistical collection office of the Federal Reserve spends his day adjusting raw inflation data.

But what I will call “Don’s CPI”—the price of things Don buys for his business—has risen about 5% in the last year. And Don sees more to come.

So Don has raised his own prices 6%, in order to stay ahead of the curve. Last time I checked, that’s higher than any point on the yield curve.

Any resistance, I asked as I paid my bill? (My bill at Don’s—as I have said in the past—is always $700. No matter what gets done. It’s always $700.)

Don shook his head. “Business is booming.”


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

11 comments:

Meme chose said...

My bill at Don’s—as I have said in the past—is always $700. No matter what gets done. It’s always $700.

So his prices aren't going up, then?

pondering said...

I was curious, did Don mention how many people paid with cash or is cash now an anachronism.

DaleW said...

So Don has raised his own prices 6%, in order to stay ahead of the curve. Last time I checked, that’s higher than any point on the yield curve.

If Don raises his prices 6% year-in and year-out, the yield curve is wrong. If the last time he raised his prices was 2-3 years ago and the next time he does so is 2-3 years from now and 2-3 years after that, the yield curve is right.

diginc said...

Maybe your question should've been "How do most of your customers pay their bill, with cash or credit?"

Ryan said...

Jeff,

You're beating this anecdotal CPI stuff to death - in my view.

But, since you're focusing in on auto repair in this post, would you care to comment on what the LIFO Reserve at, say, Autozone, Advanced Auto Parts, and O'Reilly is saying about inflation in this industry?

Here's what Autozone said in their most recent 10-Q:

Due to price deflation on the Company’s merchandise purchases, the Company’s inventory balances are effectively maintained under the first-in, first-out method as the Company’s policy is not to write up inventory for favorable LIFO adjustments, resulting in cost of sales being reflected at the higher amount.


Best,
Ryan Stambaugh

whydibuy said...

This bond conumdrum has gone on too long for it to be an oversight of market forces. Something else is at work and I suspect the market is more and more dictated by world rates. Ken Fisher is bullish because the long rates worldwide are still low and mostly steady. Our rates from their eyes. Yields in relation to our dollar and their home yields. They don't give a hoot about our inflation. Just my attempt to justify 5% 10yr bonds with probably 5% inflation. If not, you explain it to me. I'd like to hear the analysis.

Barry Ritholtz said...

As I am so fond of saying, if you want to knwo avbout the Boskin Chained PCE Deflator, ask an Economist.

But if you want to know aboujt inflation, ask a cab driver, housewife or small business owner. The y will tell you what the dismal scientists don't know: There's plenty of invlation out there, and has been for 2-3 years.

See Thomas’s Ham & Eggery Guide to Inflation for a similar look at CPI

DS said...

Shouldn't your bill have been $742, with that 6% increase in there?

Tim Knows How to Make Stuff Up said...

Is Don related to Ivan? My bill, each time, is usually in the $700-$800 range. Now, I often take the vehicle in for an oil change, but then he typically finds something that needs a tweak or to be replaced. I've yet to have leave there without anything more being done than an oil change.

Now, I am very cyncial by nature. I own four vehicles and I only bring my German one to Ivan for service. The other cars go the stealers for regular maintenance.

csdorotoc said...

This site should be called "cute and meaningless anecdotes about inflation."

Aaron Koral said...

I talked to a tire tech at Costco today and asked him about the price of tires. Prices for auto tires have risen significantly over the past six months, according to my contact. He mentioned that prices have increased between 10% and 25% over the past six months due to higher oil prices (one of the main components to manufacture rubber) as well as gasoline costs (to deliver the tire products to stores). He also mentioned that even with the higher prices, business is good (i.e., busy) - I am not making this up! I wonder what this means for tire companies if they're able to pass along price increases to their tire center customers (ex-auto companies, of course)? - and, as always, I could be wrong....