The Bacon-Cheeseburger Effect

Janet Yellen is plotting the monetary future using complex data points that consider inflation, employment, and productivity. But one brokerage is resorting to more tangible evidence: bacon cheeseburgers.

Nicholas Colas, chief market strategist at Convergex, a global brokerage based in New York, tracks “off the grid” economic indicators. He found that measuring the prices of ingredients in a bacon cheeseburger can determine the impact of inflation.

Colas tracked prices for ground beef, cheese, and bacon since 1980—he left off the bun “in deference to history and those on a low-carb diet.” It turns out the bacon-cheeseburger index reveals deflation over the past few months. On a year-over-year basis, the ingredients fell 2.9% in June, 1.2% in July, and 2.7% in August. Historically, bacon-cheeseburger deflation has signaled a slowing economy, he notes.

“Go back through the price history, and negative 3% to 4% price declines for bacon cheeseburgers are often a sign that the Fed needs to cut interest rates and push liquidity into the domestic economy. I know that sounds weird, but the last time our bacon cheeseburger showed negative price trends of this magnitude was in 2009. Before that, it was 1998 [Asia crisis] and 1991-92 [Gulf War I].”

Will Yellen heed the warning and delay rate hikes? Colas urges her to sink her teeth into this issue, “Even if bacon cheeseburgers aren’t on the cafeteria menu at Fed HQ, Chair Yellen would do well to heed the sizzle of deflationary pressures.”

(Source: Barron’s, 10/2/2015)

© The Academy of Preferred Financial Advisors, Inc.  Source Barron’s