What Kind of Stocks Benefit from Inflation?
High inflation tends to be a drag on the overall economy for a number of reasons.
It’s not just that businesses have to pay more for supplies. They also have to increase wages for their workers to stay competitive in the labor market.
And capital investments become more costly too. The rising interest rates that follow inflation make it more expensive to take on debt.
At the same time, businesses may struggle to pass on all their higher costs to consumers.
That being said, there are a number of business sectors that actually benefit from inflation.
It’s worth taking a closer look at these.
Financials
Bank stocks are said to be prime beneficiaries of higher inflation.
As interest rates go up with higher inflation, banks can charge more for their loans.
In addition, consumers are likely to increase credit card spending, which banks can further benefit from.
Major bank stocks include companies like Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C) amongst others.
Energy
Inflation indices typically take into account energy prices, like the cost of gasoline and natural gas.
Consequently, higher inflation rates usually involve higher energy prices as well.
Of course, energy producers such as oil and gas companies directly benefit when energy prices increase. It means they can charge more for what they sell.
The top two energy stocks include Chevron (CVX) and Exxon Mobil (XOM).
Mining
Metals are another type of commodity.
Inflation naturally increases the cost of raw materials such as metals.
Mining companies that produce metals can thus charge higher prices and increase profits.
Top mining stocks include BHP Group (BHP), Rio Tinto (RIO), Freeport-McMoRan (FCX), Newport Mining (NEM) and Barrick Gold (GOLD).
Consumer Staples
Even when prices are higher, consumers have no choice but to continue to spend on things like groceries and household goods.
This means companies in the consumer staples sector can more easily pass on costs by increasing prices.
Stocks in this sector include companies like Kroger (KR), Costco (COST), Tyson Foods (TSN), Walmart (WMT) and Unilever (UL).
