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Retail Sales & Price of Inflation

Wednesday, 6 Apr 2011 | 3:34 PM ET
Man shopping for clothes
UpperCut Images | Getty Images
Man shopping for clothes

Kevin Ospina is not letting inflation fears get in the way of his spending habits.

The 28-year old business analyst, who was unemployed for seven months last year, started a new job last September.

"I am making money now and I want to enjoy what I have," Ospina said. "I am spending money on vacations. I go out to dinner a lot and I'm buying clothing—lots of sneakers."

Retailers are banking on people like Ospina who won't flinch at paying higher prices for gasoline, clothing and food. It comes as more and more retailers succumb to the pressure to raise prices to account for higher commodity costs.

CRT Capital Group Senior Vice-President and Retail Analyst Leah Hartman says retailers are thinking ahead and already testing out higher price points.

"The real impact will occur with the Spring 2012 merchandise. That is a given," said Hartman.

If retailers start having trouble passing on higher costs to consumers, she says look out for shirts that may be an inch narrower, with less top stitching and fewer decorative buttons.

Hartman believes luxury retailers and those with wide price points are best positioned to weather inflation. That's because energy and food prices take a smaller chunk out of those with higher incomes.

Her picks include Nordstrom , Saks and Macys .

Hartman forecasts the hardest hit retailers will be ones such as Walmart (NYSE: WMT) because discretionary spending takes a bigger chunk out of low income earners.

Walmart CEO Bill Simon said last week that his company is "seeing cost increases starting to come through at a pretty rapid rate." He said the company has been trying to keep costs down by working directly with its suppliers.

Wall Street Strategies Equity Research Analyst Brian Sozzi says to be a winner in this environment, it's vital to stand for something.

"It could be where you show relative value on a broad range of products to the discerning consumer against a backdrop of rising ticket prices at full price stores; in doing so, you can also raise your prices while still undercutting competitors. If you are hanging out in the middle, it will be a tough year," said Sozzi.

The retailers he would bet on include True Religion Apparel Abercrombie & Fitch

and The TJX Companies .

Hartman Has No Disclosures.

Sozzi Has No Disclosures.

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Stephanie is Squawk Box producer. Follow her on twitter @StephLandsman

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