3 Reasons Reflation Won't Crimp Economic Growth In The Charts

While we would usually focus on the YoY retail sales figure, it's important to recognize the outsized growth compares to a period whereby the economy was shut down and stay-at-home orders were in place. Therefore, the MoM numbers that headline the retail sales report, will largely remain front-and-center amongst market participants. Putting all the aforementioned puzzle pieces together...

...the fearful inflation narrative that drives clicks and viewership amongst the financial media is understood to be a product of the business model necessary to drive advertising dollars. The more fearful a narrative they produce, the more likely market participants are to "tune in", which further drives advertising revenues. It's the job of an investor to discern for themselves the realities beyond the fearful narrative. Admittedly, we shouldn't dismiss inflation out of hand just yet. We should be knowledgeable about inflation conditions and monitor the incoming data over the next few months, as the Fed determines it to be transitory or potentially having some lingering effects by year's end. Until that time period, however, we also know that the consumer should prove resilient and aiding the economy recover, as well as the earnings recovery. All of the aforementioned metrics that prove to benefit the consumer, also have proven to benefit corporate net margins.

  • Cutting costs and boosting prices for products seems to be working well for companies already.
  • Net margins (ex-Financials) have jumped to a record high thus far.
  • It’s clear that commodity cost impacts are NOT negatively reflected in margins, as they are largely offset by deleveraging costs elsewhere.
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