So, I was at my local 99¢ Only Store to buy gag gifts for a friend who was coming into town, and geek that I am, I started thinking about how long it would be before "Helicopter Ben" Bernanke worked his magic and inflation caused the company to change its name. The $1.99 Only Stores doesn't quite have the same ring, does it?
Much like a central bank trying to disguise its money printing by reducing the metal content in its coins, maybe the store would first attempt to reduce the size of its merchandise - get 2 double A batteries for 99 cents, instead of 4. (Aside: you probably missed this in 2006 - New rules outlaw melting pennies, nickels for profit. This is a classic sign of a currency that is rapidly being debased. See http://www.usatoday.com/money/2006-12-14-melting-ban-usat_x.htm)
Anyway, sooner or later, playing with the quantity would stop working. After all, people would probably start noticing when the store tried to sell half a AA battery for 99 cents! At that point the gig is up - either the store has to overhaul its inventory to stock the lowest quality, commodity goods, or it will have to raise prices. How long do I think it will take? Well, according to their website, 99¢ Only Stores got started in 1982, right at the tail end of the Great Inflation, and benefited from the tailwind of rapidly declining inflation. Given my prognosis for significant inflation in the US in the next 3-5 years and the start of a new era of inflation, I expect to see a name change in about 10 years.
China's vast (and excess) manufacturing capacity, a well as its under-priced currency is also a huge factor in the pricing of cheap retail goods. China has allowed its currency to appreciate over the last four years from a little over 8 yuan to the dollar to 6.84 today, but that appreciation has been too little and too slow for the U.S. Govt's taste. I will address China in a future post, but suffice it to say, I see serious problems ahead in their economy.