The BK Index

Shock…that is all I felt when I saw the BK index soar last week. As background, I must remind you that the government indicated last week that, during the month of August, “core inflation” (accounting by the U.S. Government that does not include food or energy costs, but is used to calculate the COLA benefits for things like Social Security) was flat during the month. They did indicate that the “inflation rate” went up by 0.3% for an annualized rate of 3.6%. At the time, I didn’t think much about the statement because everything I had been reading indicated that inflation was “under control” and the worry was about possible deflation. Now back to the BK Index. I am a creature of habit, as my wife will tell anyone. When I leave my Denver office to come home I always stop at a Burger King on the way to the airport. I always buy a Whopper Junior with cheese, no pickle, at this same Burger King where they give me a free soda (no age disclosure). The cost of this meal has always been $1.35 ($1.25 for the meal plus 10 cents tax). Last week I went into my Burger King, ordered my Whopper Junior with cheese and was told my bill was $1.72! What? There must be a mistake! No mistake, I was told. The week before, prices had been raised at BK, and the Whopper Junior, which had been a mere $1 meal, was now $1.29, to add cheese was now 30 cents instead of 25 cents, and to make matters worse, the tax on my meal had gone up from 10 cents to 13 cents! As you read this I know what you are thinking: it’s only a burger and it’s only an additional 37 cents and he is still getting his free soda. True enough, but it is an increase of 27%. For the state of Colorado, it is an increase of 30%. I was truly shocked and began to wonder if something was happening in September that was being missed by everyone else. To go to the other end of the spectrum, I looked at the MB Index (Mercedes Benz) and discovered that the price on their bread and butter E 350 had gone up by 3.3% for the 2011 model year. Finally, in desperation, I checked the BB Index (Brooks Brothers). They always send me 25% off coupons to buy at their outlet store in Kittery, Maine. Not so for the latest coupons, which are only 15% off. That means the dress shirt that was $37.50 before would now cost me $42.50 or an increase of 13%. So I ask you, is inflation beginning to creep up on us, or am I being too selective? Personally, I think it is time for the Federal Reserve to signal that they are going to start inching up the Fed Funds rate 0.25% at each of their next meetings and get it up to at least 1%. Being careful and signaling what they are doing will have a mild effect on the economy, but will help them be in a better position if inflation heats up. Ed Mallon