Could this FTSE 100 stock be the best inflation-beating investment?

What are the best shares to buy to beat inflation? Zaven Boyrazian analyses one FTSE 100 stock that doesn’t fear rising prices.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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The past few weeks have been a bumpy ride for the FTSE 100. Recently the discovery of the Omicron Covid-19 variant has seen investors spooked. But before that, inflation was the primary cause for concern. And it remains a leading issue for investors today moving into 2022. As the cost of raw materials increase, the pricing power of businesses is being put to the test. And several firms are discovering their ability to pass on the additional expense to customers may not be as strong as initially anticipated.

In most cases, inflation is bad news, especially for consumers. However, a few sectors, like the housing market, can actually benefit from rising prices. With that in mind, I’m looking at shares of one FTSE 100 firm that might be the best buy to beat inflation.

Persimmon: my best buy today?

Historically during times of higher inflation, property values have increased. And that’s positive news for existing homeowners. After all, even if living expenses are on the rise, the boosted worth of their homes can help mitigate the damage to overall wealth. However, they’re not the only beneficiary of rising property values.

With the housing market being boosted, homebuilders can start reaping the rewards. But inflation also lifts the cost of construction materials like bricks and roof tiles, negating the rising price benefits. This is why Persimmon (LSE:PSN) has caught my eye because the firm is vertically integrated. That’s a fancy way of saying it has complete control over its own supply chain. And therefore, the rising cost of raw materials is far smaller than for other homebuilders. This is made perfectly clear in its latest half-year earnings report. Over the last six months, the group increased its bottom line by a staggering 64.8% compared to a year ago.

Needless to say, that’s impressive. And with inflation expected to continue rising throughout 2022, I think the strong profit performance can continue. This is why I believe Persimmon could be one of the best FTSE 100 shares to buy to beat inflation.

However, these tailwinds won’t last forever. The Help-To-Buy government support scheme is coming to an end in March 2023. And combining this with rising house prices may result in homes becoming unaffordable, pushing property values back down over the long term. That would obviously be bad news for Persimmon and its share price, making it a factor I’ll be watching closely.

Final thoughts on the FTSE 100 stock

There’s an ongoing debate about whether today’s inflation is permanent or temporary. Assuming it’s the latter, it could be a couple of years before it returns to pre-pandemic levels. That creates a solid period in which Persimmon could maximise profits.

I do think an eventual slowdown in the property market is inevitable. However, the need for housing in the UK isn’t likely to disappear any time soon, considering the expanding population. That’s why, despite the risks, I think Persimmon could be one of the best long-term shares to buy for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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