Just a couple of years ago, most people in the UK were concerned about inflation. This week, though, saw news that the inflation rate fell to just 1.6% in July; a figure that was lower than most investors had expected. However, while high inflation gets a lot of airtime in terms of how it will eat away at savings and generally harm your wealth, low inflation doesn’t seem to receive the same level of focus.
However, low inflation could be just as significant to your wealth as high inflation is. With that in mind, here are three companies that could be major beneficiaries.
ASOS
It’s been a dramatic year for ASOS (LSE: ASC), with the online fashion retailer experiencing bigger losses than expected in China, having a warehouse fire disrupt sales and seeing its share price fall by 64%. However, ASOS could stand to benefit from low rates of inflation moving forward.
That’s because low inflation means that many employees in the UK are now seeing wages rise at a faster rate than their cost of living, which could equate to more spending on items such as clothing. Furthermore, low inflation means there is far less pressure on the Bank of England to increase interest rates. This has the dual effect of keeping mortgage payments down (which means more disposable income) and also making credit purchases more attractive (which could further stimulate sales). As a result, ASOS could continue to enjoy strong sales numbers in the UK over the medium term.
National Grid
National Grid (LSE: NG) has committed to increasing its dividend by at least the rate of inflation each year. Therefore, with inflation being low it means the company will not need to increase dividends by a large amount at present. Many investors will, therefore, be disappointed, as their dividend will only increase at a relatively pedestrian rate. However, it means that more capital can be reinvested in the firm so as to increase the company’s regulatory asset base, which could mean increased value for shareholders over the long run. Furthermore, low inflation and low interest rates make National Grid’s 5%+ yield even more enticing, with shares in the company more likely to see demand increase as a result.
Banco Santander
As a major player in the UK banking scene, Santander (LSE: BNC) could be a major beneficiary of low levels of inflation. As mentioned, low inflation means interest rates are likely to stay low for longer, which could mean higher demand for loans from individuals and businesses, as they seek to take advantage of a historically low rate. This could mean more fees for Santander, as well as a low interest rate contributing to an improved macroeconomic outlook for the UK. As with all major banks, an improving economy means less write-downs and fewer bad loans for Santander, which should help to boost the bank’s bottom line.
