Guggenheim Securities retail analyst John Heinbockel has some follow-up thoughts on the inflation ripples caused by Dollar General last week. The locally based discounter (Ticker: DG) had said it was for the most part holding off on passing through price hikes on consumable goods, but Heinbockel — who formally follows Kroger in this space — suggests that may prove to be a costly strategy.

[I]t is questionable whether "eating" this inflation will result in increased volumes, given the fragile state of the consumer. Finally, it is even more questionable whether incremental traffic would result in improved discretionary sales. It would appear the safest approach would be to pass through inflation, hope to hold comps steady, attack SG&A more aggressively, and expand EBIT margin via expense leverage.