Burger King: Perfect Example of Current Inflation Pressures

Burger King’s decision this week to raise the price of a double cheeseburger from $1 to $1.19 and to remove one slice of cheese from the double cheeseburger on its dollar menu (they now call it the BK Dollar Double) is a perfect example of the dilemma that major U.S. corporations are dealing with in the current economic environment.

Their costs are going up on the producer level because of higher commodity prices and in a healthy economy, Burger King (BKC) would have simply raised the price of the burger. However with demand weak, they are forced to cut their offering by giving you only 1 instead of 2 slices of cheese if you order from the dollar menu. For those people that still want 2 slices of cheese on their hamburger – be prepared to pay up. While $1 menu items can boost traffic and sales, restaurant operators can lose money if too many of those sales come from money-losing items and this problem is exacerbated by rising prices.

This week, we saw a sharp increase in producer prices but virtually no growth in consumer prices. Producers are having a tough time passing on higher costs to consumers and are therefore left with the tough choice of either:

  1. Eating the cost
  2. Skimping on the product or
  3. Risk losing customers by raising the price

None of these options are good ones but this is the consequence of operating in a country with an unemployment rate of 9.7 percent.

This is inflation – disinflation in the works my friends.

In the meantime, if you are hungry for a double cheeseburger, eat as many as you can by April 26 because that is when the price increase will be implemented!

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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