Why inflation may be about to wane — just as fear of it peaks
Target’s April quarter dismal results last week were partly due to the bloated inventories of big box retailers. This week, specialty retailers such as Best Buy and Dick’s Sporting Goods have continued to feel the pinch. However, the good news is that those goods piles across the country may be a sign of inflation receding as well as increased anxiety about rising gasoline prices and other high-priced items. The fact is that consumer prices increased 8.3% by April over the year prior, just slightly less than 8.5% in March. According to Ed Hyman’s Monday report, Evercore ISI economist Ed Hyman believes that there will be an inflation slowdown in the future. He wrote that “in the event of an increase or decrease in unneeded inventories there may be an increase in marksdowns and a drop-off in orders.” It is expected that retailers will offer promotions and discounts to help clear out their stock, and to prepare for the start of back-to-school and eventually end-of year holidays. Walmart inventory at March’s end rose 8.4% from December to 32% more than a year earlier. Target saw its year-over-year inventory rise 50%. Dick’s inventories increased by 40% in comparison to a year earlier. Nordstrom’s inventories grew 24%. Best Buy reported Tuesday that inventory levels in the April quarter were more than 9 percent higher than year-ago levels. Greg Melich from Evercore ISI, an analyst at Evercore ISI says that sales are increasing faster than real inventory. According to Evercore ISI analyst Greg Melich, real inventories are growing faster than sales at almost every major retailer, with the exception of Lowe’s. This is causing orders to drop and marking downs to be implemented, at the least for general merchandise.[U]Melich, who was referring specifically to the total addressable markets, wrote an email that indicated that there are nit (or actual) inventories rising in many general product categories (around $1 trillion TAM). That’s the problem that needs to be addressed in the summer…It is the most general merchandise categories with the greatest mismatch. Discounts are not possible for consumers looking to buy new bedding, tableware or furniture.