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This morning's CPI numbers make it increasingly tough for Bernanke to ignore inflation with CPI +2.7%.  But they'll be quick to latch on to the 1.2% excluding food and energy, Well... guess what Ben, we need to eat, and most of us need to heat our homes and use energy to get to work each day. We can't exclude it from our wallets.

Nonetheless, we look at the relative spread in consumer prices vs. import costs (reported by OTEXA) net of the % of apparel that is produced domestically.  In the end you get the chart below.  We refer to it often, because it matters.

At the start of this year, we came out of a 2.5 year period of having a 3-Standard Deviation positive spread between costs and consumer prices. Yes, this helped margins -- by about $3bn per year. For a $280bn industry with high-single-digit margins this is big. Even if I'm generous and give 'em a 10% margin, that's $28bn in normalized operating profit. $3bn on top of that PER YEAR for 2.5 years running.

Now we're 2-Standard Deviations in the other direction. Logically, not many people will debate that. But There are too many people I talk to who are already looking to 2H12 for an earnings rebound. They're a year too early.

Inflation Spreads: 13 not 12 - Margin Kitty