Who knows more about inflation, Richard Galanti or Ben Bernanke? I maintain that, when it comes to the facts, Mr. Galanti knows more than the Fed chairman. Galanti is the CFO of Costco Wholesale Corp.

The Wall Street Journal reported last Thursday (May 26th) on a conference call with Mr. Galanti. He said “we saw quite a bit of inflationary pricing” in the 3rd quarter.

Price increases occurred in a broad range of products” dry dog food (3.5%). Detergents (10%+), plastic products (8-9%). Costco will “hold prices as long as we can.” When it can no longer, the consumer will face rising prices.

Costco is a good leading indicator of inflation at the retail level. It turns over inventory quickly, and is leading other retailers in restocking at higher prices. Costco offers a forward-looking view of consumer price inflation.

Meanwhile the Fed and its chairman, Ben Bernanke, rely on backward looking measures of inflation, like the CPI. That index, and the “core” component that excludes food and energy prices, overweight the depressed housing sector. And they are yesterday’s news.

For years, American consumers have benefitted from cheap imports from China and India. When those countries liberalized and opened up to global commerce, Americans got the benefit of the hard work and low wages of 2 ½ billion workers. The era of cheap labor is coming to an end, and with it the flood of imports that held down prices in the U.S. Especially in China, wage rates are rising rapidly.

Heretofore, the flood of dollars has chiefly affected asset prices and inflation in other countries. The flow through to U.S. consumer prices will now be quicker. You’ll experience it when you go to Costco to restock.