Wealthy & Wise: Investing when Inflation Is Rising

Why It Matters

Understanding which companies can sustain margins in a rising‑cost environment helps investors protect portfolio value and capitalize on inflation‑driven opportunities, while anticipating tighter monetary policy informs timing and risk management.

Key Takeaways

• Inflation pressures vary across sectors, favoring pricing‑power firms in markets.
• RBA likely to raise rates, compressing valuations across the market.
• Input costs surge in energy and materials, while labor remains moderate.
• Investors should target firms with strong pricing power and real returns.
• Managing inflation expectations is key to avoiding self‑fulfilling wage spirals.

Summary

The episode of Wealthy & Wise examined how rising inflation reshapes investment decisions, especially through a value‑investing lens. Host and guests highlighted that Australia’s trimmed‑mean inflation sits at 3.3% and headline at 3.6%, well above the RBA’s 2.5% target, and that geopolitical shocks are adding further pressure.

They explained that inflation does not affect all businesses equally. Companies with pricing power—such as consumer staples—can pass higher input costs on to customers, preserving margins, while firms lacking that ability see profit erosion. Input‑cost surveys show spikes in energy and materials, whereas wage growth remains around 3% despite a proposed 5% minimum‑wage hike. Higher rates expected from the RBA will raise the discount rate, compressing valuations that were built on ultra‑low‑interest assumptions.

Andrew Coleman noted, “If businesses can grow revenue faster than costs, they become net beneficiaries of inflation,” and warned that a wage‑price spiral could become self‑fulfilling. The RBA minutes described the outlook as “uncertain,” reflecting the nonlinear impact of Middle‑East conflicts on fuel and food prices. John Burke‑Old of TWWC Invest stressed the need to measure real, after‑inflation returns rather than nominal profitability.

For investors, the takeaway is to tilt portfolios toward firms with durable pricing power, strong balance sheets, and demonstrable real returns. Expectation management by the RBA and government will be critical; prolonged inflation could force tighter monetary policy, slower GDP growth, and a recession reminiscent of 1991. Positioning now can mitigate downside risk and capture upside in an inflation‑prone environment.

Original Description

Inflation is back on the agenda, but are you treating it as noise, or a core part of your portfolio strategy as a value investor?

This episode of Wealthy & Wise digs into how inflation shows up at the company level in input costs, pricing power, margins, and ultimately equity returns.

We hear from Andrew Coleman from Teaminvest, AMP economist My Bui, and John Birkhold from TWC Invest.

They discuss companies that more are resistant to inflation such as "ticket clippers" like Car Group and Jumbo Interactive, where the business takes a percentage of a transaction. And high margin tech firms and healthcare where customers are price insensitive (Google and Microsoft), or where the product is a necessity.

But they suggest avoiding firms with fixed price contracts, when the cost to do a job rises after the price has already been locked in.

And companies that face high competition such as consumer stocks like Harvey Norman, and regulated industries, like AGL or Medibank that need government approval to raise prices.

The verdict on big banks: generally avoid because they are hypersensitive to the mortgage market and interest rate changes, rely on offshore funding, and leverage risk.

Companies discussed include: $REA $JIN $CAR $HVN $WOR $SGP $AGL $MQG $QBE $GOOGL $AGL

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