Pro Traders: Inflation to Put the Pinch on Retailers?

Inflation was top of mind for the Fast Money Traders Thursday morning after U.S. consumer prices climbed more than consensus expectations and cotton again traded limit up.

The Consumer Price Index increased 0.4% in January from the prior month, exceeding economists’ expectations of a 0.3% rise. On an annual basis, prices were up 1.6% in January.

The CPI rise came on the back of strong gains in wholesale prices. The producer price index, excluding energy and food prices, gained 0.5% in January, according to government data released yesterday. That was the biggest gain since October 2008.

U.S. data indicated inflation was gaining momentum and raised trader concerns about companies’ ability to pass on higher input costs. Kanundrum Capital’s Brian Kelly said that his research indicates many companies are not expecting to hike prices in the next six months. Though some of the reluctance to pass on prices is likely due to hedges blunting the impact of commodities steady climb, some is due to fears that consumers will balk at higher costs, said Kelly.

Retailers were perhaps most likely to feel the pinch from commodities, traders speculated.

Cotton prices surged past the $2 per pound mark for the first time this morning, triggering daily trading limits. Apparel prices were up 1% in January from the prior month, but were flat year-over-year, according to the most recent CPI data.

It is unclear whether retailers can continue to raise prices given stubbornly high unemployment in the U.S.

Concerns from retailers and cotton mills have lead the Intercontinental Exchange to impose new position limits. The ICE is raising cotton margins for contracts and demanding that large contract buyers show they have an ‘economically appropriate’ reason for needing to hedge cotton prices.

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