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Pro Trader: Inflation Fears Overdone

Inflation fears are overdone, "Fast Money" trader Tim Seymour said Wednesday, a day after the Conference Board reported consumer confidence dropped in March due, in part, to a spike concerns over rising prices.

“The U.S. consumer, which is still the global economy as far as the world should be concerned, is stubbornly immune to inflation pressures here because they are making more money,” said Seymour, founder of EmergingMoney.com.

Seymour wasn’t denying that Americans are concerned about inflation. Folks surveyed by the Conference Board expected headline inflation—including food and energy prices—to surge to 6.7 percent in the next 12 months. The estimated level was the highest since June 2008 when world food prices hit all-time records. The fear was, perhaps, understandable given that food prices are exceeding June 2008 highs by some measures.

But, focusing on inflation fears was doing traders a disservice, Seymour explained. Inflation concerns were not—and would not—impact spending, at least not in the near term.

The reason? Wages. Even though wage growth has been anemic in the past several months, it has largely kept pace with rising consumer prices. Including the impact of higher prices, real disposable income decreased a scant 0.1 percent in February, after rising 0.5 percent in January.

Given the lack of significant income erosion, consumer spending has increased. Excluding the impact of inflation, personal consumption expenditures rose 0.3 percent in February. That may not seem like much, but it is growth. And that growth bucks bearish calls for sharp consumer spending cuts in the face of inflation.

So how do you trade it? Seymour was looking at the global auto trade. U.S. consumers need cars, particularly fuel-efficient ones given the rising price of gasoline.

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