Which shares will survive inflation hit?

Firms forced to raise prices could lose customers and cut profits. But some have 'pricing power'. Simon Read reports

Inflation slipped slightly last month but, with soaring energy prices, is almost certainly going to climb in the coming months.

Will it top 5 per cent? The Bank of England thinks so.

The minutes of the Bank's Monetary Policy Committee meeting earlier this month revealed: "Despite the fall in CPI inflation in June, it was likely that inflation would rise further, to over 5 per cent, in the coming months."

The fears are that rising gas and electricity prices – with three of the big six firms already announcing hikes of around 18 per cent in the next two months – will quickly push inflation to a 20 year high of 5.5 per cent or more.

High inflation has already had its effect on consumers. The latest Nationwide Consumer Confidence Index published on Thursday made for grim reading. The Index stands 11 points lower than at the same time last year and 28 points below its long-run average. With confidence about the economy low, people are cutting back.

For investors, inflation can offer opportunities. For instance, Mick Gilligan at stockbroker Killik tips agribusiness Syngenta as well-placed to benefit from rising food prices. The company uses biotechnology and genomic research to increase crop productivity.

"With strong exposure to the theme of growing food needs and a larger emerging markets middle class, Syngenta is a buy," he says.

In the UK, with food bills climbing, supermarkets could clearly profit. But loyalty may go out of the window as household budgets are tightened and shoppers seek keener prices. For that reason, the more heavily discounted chains – such as Lidl, Aldo and, in the clothes sector, Primark – may see an upsurge in demand as inflation bites even harder.

Retailers that are forced to cut prices to attract customers could soon start to struggle. For instance Kingfisher, the parent company of B&Q, is highlighted by the Share Centre as one to watch.

"Offers to entice consumers could put a strain on margins," says Nick Raynor, investment adviser at the Share Centre. "The company's update at the beginning of June did note tougher times ahead."

So which companies will withstand the problems of rising inflation? Those that sell items where demand is price inelastic. That means that, even if they increase prices, demand shouldn't fall.

A great example of that is Burberry. It has diversified from raincoats and checked scarves to become a leading and resilient global luxury goods brand, with a strong presence in the quickly-growing market of China.

"Burberry's strong and highly sought-after brand enables it to effectively pass on the impact of rising input costs to its customers via higher prices," says Aruna Karunathilake, manager of Fidelity UK Aggressive fund.

She also picks energy exploration and production company BG Group. "Commodity companies such as BG tend to do well in times of rising inflation, as their real assets keep their value in times of monetary debasement," she says.

Sam Morse, manager of the Fidelity European fund says Nestlé is a great example of a company with significant pricing power.

"It has been successful in creating a collection of brands that consumers like, such as KitKat, Shredded Wheat and Nescafé," he points out. In addition, he says, Nestlé benefits from significant scale advantages to be a low-cost producer.

Tobacco company Swedish Match is another good example, Morse says. The firm manufactures and markets products such as snus/snuff, chewing tobacco, cigars, pipe tobacco, matches and disposable lighters. "Naturally, demand for such products that are associated with an addiction tend to be rather price inelastic," Morse says.

Amit Lodha, portfolio manager, Fidelity Funds Global Real Assets fund, picks engineering company Linde and Australian mining company Iluka Resources. "Linde has pricing power as it has the ability to pass through higher costs through its contracts that it sets with its customers at different stages of the cycle," she says. Iluka, she adds, has leeway to raise prices of the zircon and titanium it mines.

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

Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Malky Mackay salutes the Cardiff fans after the 3-1 defeat at Liverpool on Sunday
footballFormer Cardiff boss accused of sending homophobic, racist and messages
Arts and Entertainment
Martin Amis: Taken to task over rash decisions and ill-judged statements
booksThe Zone of Interest just doesn't work, says James Runcie
Life and Style
life – it's not, says Rachel McKinnon
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Corporate Tax Solicitor

    Highly Competitive Salary: Austen Lloyd: CITY - HIGHEST QUALITY INTERNATIONAL ...

    Relationship Manager

    £500 - £600 per day: Orgtel: Relationship Manager, London, Banking, Accountant...

    Trainee Recruitment Consultant

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

    Test Lead (C#, Java, HTML, SQL) Kingston Finance

    £40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

    Magic circles: Artist Olafur Eliasson

    Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home