Chick-fil-A & Inflation

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Chic-fil-A & Inflation

What can Chick-fil-A points teach us about inflation? I’m really excited about this episode of the Money Matters podcast. That’s because I get to talk about one of my favorite places in the world – Chick-fil-A. I have a bit of a crush on Chick-fil-A. First of all, it’s because I love chicken. My wife gives me a hard time, because even if we go to a steak restaurant, I end up ordering chicken. Chick-fil-A does chicken well – better than anyone else in my opinion. I could eat there for multiple meals in a row and not even get close to getting tired of it. My goodness, I find myself craving a Chick-fil-A sandwich even as I type. I’m also crazy about Chick-fil-A because of how well they execute on customer service and efficiency. They have a unique business model and a unique set of values. I love studying their strategy and admittedly look for ways our financial institution can become “the Chick Fil-A of banking.” But another reason I’m excited about today’s podcast is I think I’ve found a way to use Chick-fil-A to teach you about inflation and the money supply. One of our most listened to podcast episodes was entitled “Neyland Stadium and Inflation” and I think it was so popular because it took something everyone could understand, a trip to see the Vols at Neyland Stadium, and likened it to the experience of inflation. So, what in the world does inflation and the money supply have to do with Chick-fil-A? I’s so glad you asked.

Chick-fil-A has an app you can download, and if you scan that app each time you go there, you earn Chick-fil-A points. These points can be redeemed for food. The accumulation of points is simple, you get 10 points for every dollar you spend. My family of 6 normally spends about $45 if we go eat at Chick-fil-A – so that’s 450 points for a visit. Actually, if you earn a certain number of points in a given year, you can earn more points, but for the purpose of our discussion, we’re going to keep it simple and use 10 as our number. Now I’m a saver by nature, so I’m embarrassed to admit that I have had as much as 10,000 points in my Chick-fil-A app that I haven’t used yet. You’ll see in a moment why this has been an unwise strategy on my part. On this episode we’re going to pretend that these Chick-fil-A points are currency that we are earning. These points are going to look like dollars as I flesh out this scenario.

Let’s start by looking at inflation through the lens of these Chick-fil-A points. If I go there today and get a Chick-fil-A sandwich (with pickles and Polynesian sauce by the way), it will cost me 800 points. So, my 10,000 points is reduced to 9,200 with that purchase. But do you know how many points a sandwich cost a couple of years ago? 600. So even though I have the same number of points, those points don’t go as far as they once did. If I wanted to empty out my points, I could only buy 12 sandwiches today, whereas I could have bought 16 sandwiches a couple of years ago. In this case the value of my points has gone down because it doesn’t buy as much as it once did. In very simple terms this is what has happened to the US dollar in the last few years. Inflation has caused the price of many of the things that you buy to leave you walking away with less. Inflation has eroded the purchasing power of your dollars. We have all experienced this.

So how do you offset the erosion of this purchasing power? One way is by earning more dollars. Some of you listening to this podcast are making more money than you were a couple of years ago. You may have gotten a raise recently. Going back to my example of Chick-fil-A points, today I’m still earning the same number of points that I was when chicken sandwiches were 600 points – 10 points per dollar. So, my “income” of points has not gone up, but the price of what I want to use those points for has. That means I have gone backwards financially. So much for our inflation lesson. But let’s take this a step further and talk about how the money supply causes inflation.

Let’s say that Chick-fil-A wanted to increase their sales, so they gave us a one-time bonus of Chick-fil-A points. It wasn’t tied to us earning them, but it was simply a windfall of 20,000 Chick-fil-A points. What do you think is going to happen? We’re all going to go to Chick-fil-A to use our points. If we all go at the same time, that drive-up line gets even longer and starts to put strain on their ability to deliver food for all the people coming in. In this scenario with everyone eager to spend their points, there is so much demand that in order to ease it, Chick-fil-A has to raise the price of that chicken sandwich from 800 points to 1500 points just to slow things down. By giving these bonus points, they juiced up their sales. But in order to keep the system from falling apart, the price has to go up to slow down the rush. And if the price goes up enough, sales could actually slow down, because people won’t want to spend that many points and only have a chicken sandwich to show for it.

In some ways, this is what has happened over the last few years. Most Americans had dollars dropped in their lap. Those dollars were unearned, in many cases, and so many of them were spent. Human beings are quicker to spend what they didn’t earn themselves. Let me give you an example. If my 13-year-old wants a new pair of jeans, she is not likely to blink if she is spending my money. But when I ask her to spend her own hard-earned money, she is likely to pause, and maybe even decide not to buy those jeans, because there was work attached to the money that would pay for those jeans. In the same way, when windfalls come our way, we often look at that money differently and often spend it more freely than we would have if we accumulated that money over time working. So, a ton of money has been doled out and spent over the last couple of years and the “drive though” was unable to keep up. This is what caused a major strain on the supply chain, and to slow it down, prices went up on just about everything. Here’s the difficult part of all of this. In some cases, prices went up more than the windfall of money that came in. So, dumping Chick-fil-A points into the system, didn’t help, but actually hurt.

This analogy is far from a perfect one, but hopefully it helps explain how we got to where we are. As of today, we are seeing the money supply actually contracting rather than expanding. This could be likened to earning 5 points per dollar spent at Chick-fil-A instead of 10. Historically, the implications of this generally leads to recession. Markets right now are assuming that the Fed is going to be able to land the inflation plane safely without incident, but as I have stated in other episodes, I’m not so sure that is the case. So, I’ll close in similar fashion as I have in recent podcasts: pay down debt, increase your cash reserves, and be wise and thoughtful about future purchases/decisions. It doesn’t mean you don’t need to make purchases or investments, but you do need to make them strategically. It’s not just Chick-fil-A points you may want to be banking for a rainy day.

At MBC/Foundation Bank, we’re a great place for you to park your rainy-day fund or operating account. We have a high interest checking account that offers benefits like cell phone protection, roadside assistance, discounts on things you buy, and credit monitoring. Find out more about this account and the other services we offer by exploring our website. If you’ve found this podcast helpful, we hope you’ll subscribe to it in your favorite podcast app and share it on social media. Until our next episode, God bless you. 

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of McKenzie Banking Company / Foundation Bank on August 1, 2023. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.