Inflation Just Hit 3.7%. Here's Why Walmart and Costco Could Be the Biggest Winners.

In September, the Consumer Price Index climbed 3.7%, a rise from 3.4% in August, according to the Bureau of Labor Statistics. The main culprit behind this surge was gasoline, which increased by 9.1% in a single month and 34.2% over the course of a year. While other costs like food at home only grew by 1.8% during the year. The gap between these two numbers reveals a crucial insight for investors: as dining out becomes more expensive, people tend to cook at home and seek better deals on groceries.

Both Walmart and Costco have business models that thrive on such a scenario. Costco caps its markup at 14% on regular goods and 15% on its private label, Kirkland Signature, ensuring customers get the best prices. Meanwhile, Walmart prefers selling more items at a thin margin rather than fewer at a higher one. With inflation pushing prices up, these companies attract price-conscious consumers looking for value, driving sales and stock growth.

Walmart's U.S. comparable sales rose 3.4% last quarter, with total revenue hitting $187.9 billion and e-commerce sales climbing by 23%. CEO Doug McMillon noted that higher-income shoppers are increasingly joining Walmart's traditional customer base, a trend expected during economic uncertainty. Costco's fourth quarter saw sales grow by 11.2% to $93.9 billion, with comparable sales increasing by 9.4% and membership fees rising by 7.3% to $1.85 billion.

Membership renewal rates in the U.S. and Canada stood at 92.3%, while executive memberships surged by 9.4% to an all-time high of 42.3 million. While both stocks have already priced in much of this positive news and are trading at elevated valuations, they remain strong contenders for investors betting on inflation's continued rise in 2027.