Investment Insider: Inflation could be a friend to investors

Firms which can raise prices may be a good bet for future growth

Consumers might be one step ahead of many academics, experts and, more importantly, central bankers when it comes to the outlook for inflation.

According to a recent survey from Gocompare.com, over a third of UK consumers are worried about the rising cost of living. Meanwhile, many experts are assuring the markets that inflation is unlikely to be a problem. Their argument is that there is excess capacity in global economies. Consequently, with supply exceeding demand, they do not believe that prices are likely to rise.

However, consumers remain unconvinced, and they might have a point. The unprecedented amount of money that has been created since the financial crisis of 2007 could, in time, prove them, rather than the experts, right. Truth is, it is hard to imagine how the pumping of more than $12 trillion (£7.287trn) into global economies by various central banks can be anything other than inflationary. The danger for savers is that inflation erodes the buying power of money.

Over the long term, investing in the stock market has been a good way to ensure your savings can beat inflation. Historically, the stock market has nominally returned around 8 per cent, which is higher than the rate at which the price of consumer goods has been rising. The reason for the above-average return is simple – companies have to pass on price increases if they want to stay in business. However, not all of them can easily do this, so investors should try to focus on those that can if they believe inflation is likely to be a problem.

Utility companies, including Centrica, National Grid and SSE, are among those able to pass on price rises, though not without some fuss from both consumers and regulators.

Cigarette makers such as British American Tobacco (BAT) and Imperial Tobacco have some of the most stable net-profit margins among the UK's blue chips.

Tobacco might be seen as unethical by some investors. However, their ability to outperform the wider market should not be dismissed. Over the last 10 years, an investment in BAT would have increased sixfold, while Imperial Tobacco has returned around 260 per cent including dividends.

Pharmaceuticals are also seen as inflation-proof. If you need specific medication, the cost of acquiring the drug is, to some extent, almost irrelevant.

Food is another industry largely resistant to inflation. Companies with a wide geographic footprint could find that a slowdown in one region is compensated by higher growth elsewhere. Some of the more geographically diversified food producers in the UK include Unilever, which generates 40 per cent of its revenues from Asia, Africa and the Middle East and Tate & Lyle, which relies on the US for almost 60 per cent of its sales.

Associated British Foods is another notable food producer, but it also owns low-cost clothing retailer Primark, which accounts for about a third of its total business. In times of higher inflation, budget retailers are generally able to increase prices and still keep them at relatively affordable levels.

At the other end of the spectrum, high-end retailers, such as Burberry, could find that buyers for their products are not especially sensitive to price increases.

David Kuo is director of fool.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
David Moyes and Louis van Gaal
football
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Worldwide ticket sales for The Lion King musical surpassed $6.2bn ($3.8bn) this summer
tvMusical is biggest grossing show or film in history
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
News
i100
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Quantitative Risk Manager

    Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

    Day In a Page

    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits