Sex and Inflation
from Merrill Lynch’s chief economist, David Rosenberg]
Gender gap in the CPI? Focus on firms that cater to women
After sifting through the January CPI report in more detail, we discovered a disparity between the pricing power of retail establishments that cater to women and those geared towards men. Now there is no doubt that some men like to shop for bedroom and dining room furniture and some women love to ride motorbikes, so this may be seen as a sweeping generalization. But there may be an investment theme embedded in the CPI report that transcends “what the Fed should and shouldn’t do” because core inflation came in 50 basis points above expected. This investment theme stems from the fact that segments of the retail sector that are geared towards women happen to be experiencing faster pricing trends; and just the opposite for retailers that cater to men. We actually calculated (see chart below) a female and male inflation rate and the former is now running at 3.6% year-over-year while the latter is running just 0.2%. In other words, retail pricing power in female-oriented goods and services is running almost 20 times stronger than that of males. The major takeaway is that equity investors who have a core holding in US consumer stocks may want to take note of some fascinating economic and demographic trends taking place that are fuelling this divergence.
[stolen from the lbo-talk mailing list]