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Cramer: Lower Commodity Costs Could Spark Rally

The markets rallied on Monday because we have "broken the back of inflation," Cramer said on "Mad Money."

Inflation going down is a good thing considering roughly 90 percent of the market is made up of companies that are consumers of commodities.Companies as far ranging as Ford and General Motors to DuPont and Dow Chemical to 3M and United Technologies to General Mills and Nike to Caterpillar to Macy's and Darden need inflation down.

That's why stocks ended higher Monday, Cramer explained. Until Monday, the stocks of these companies had been falling because the funds that control stock prices thought if it isn't good for a copper producer, like Freeport, then it isn't any good. Those people don't understand that lower commodities prices do help lots of other companies. Lower costs will help many companies improve their bottom line. In turn, the estimates for these companies are now too low because they are based on out-of-date, too-high commodity prices and forecasts.

"When inflation peaked the last time around, we then caught a fantastic bull market, the one that lasted from the generational bottom in 2009 through the beginning of this year," Cramer said. "It's tough to imagine another bull market now, because we see the commodities being anemic and we figure out companies must be seeing weakness. That's wrong. They're seeing strength, strength that hasn't been turning into earnings because of skyrocketing raw costs."

If inflation has peaked, then earnings will be bountiful and gross margins could be huge.

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