Brian Sozzi's Take On Inflation (JWN, SKS)

Brian Sozzi of Wall Street Strategies is out with a research report on the prospects of inflation this morning. Sozzi notes, "I was up late last night (per the usual) pouring though the earnings calls hosted by our nation's retailers. Generally, I knew the topic de jure beforehand, inflation ranging from fluffy cotton to transportation to electricity. It's a real fundamental issue that did not show its ugly head in 2010 because price increases were eaten at the manufacturing level or at the retailer level. Those days are but a distant memory, and price increases will take a swipe at the precious cash flow in the wallets of the consumer starting in the spring and extending into 2012. Low income consumers will feel the pain on basic replenishment goods (underwear), opening price point jeans, food, and gas to drive to the local dollar store. High income consumers may not realize it, but prices on the trendiest wares at Nordstrom (JWN) or Saks (SKS) will be much higher than a year ago. Middle income consumers will trek to Marshalls to grab a deal given its off-price business model, completely unaware that it too has raised prices and is displaying relative value to competitors." Sozzi's main focus of his report is that inflation is increasing. It appears inflation could be a run away train, and that middle income consumers will trade down instead of going to a Nordstrom JWN or a Saks SKS for those aspirational purchases.