I’m on the prowl for the best UK shares to buy, now that inflation has hit its highest point since 1997. According to the Office for National Statistics, inflation hit 5.5% in January. That’s up from 5.4% in December and 5.1% in November.
Fortunately, the growth rate seems to be levelling out. But even if it remains stable, the increase in prices will undoubtedly eat into wealth. Even more so in the short term now that interest rates are also on the rise.
But I’ve spotted two businesses I believe could be resistant to the effects of inflation, and they might even profit from it. Let’s explore.
An inflation-busting leader in consumer goods
While the cost of raw materials might be on the rise, it’s only an issue for the businesses unable to pass those costs onto customers. Looking at Unilever (LSE:ULVR), the firm doesn’t seem to have that problem. That’s why I think it could be one of the best inflation-busting UK shares to buy now for my portfolio.
As a reminder, this is the company behind most of the brands found in supermarkets across the country. The list includes Vaseline, Magnum, Dove, and Cif, just to name a few. And these reputable brands naturally command some significant pricing power that management is already exercising in the fight against inflation.
Product price increases will undoubtedly harm sales volumes. And it’s possible that consumers may permanently switch to cheaper competing products to minimise the shopping bill. But even with this risk, Unilever looks perfectly positioned to deal with the impact of inflation. At least, that’s what I think. And it’s why the shares of this UK business are on my ‘buy’ list.
Is this a good hedge against inflation?
While Unilever makes strategic moves to mitigate the effects of inflation, banks like Lloyds (LSE:LLOY) welcome it with open arms. Or rather, they welcome the subsequent interest rate hikes by the Bank of England to tackle it.
Like most retail banks, Lloyds accepts deposits and uses the capital to issue loans to individuals and businesses, profiting by charging interest. But margins have been pretty tight on its lending activities over the last decade since interest rates have been kept so low.
With these now on the rise, profits might be about to surge. And with pandemic-related loan impairments no longer causing problems, the Lloyds share price could be set to enjoy a lot of upward momentum, in my opinion.
Nothing is risk-free, of course. If inflation continues to climb, it could start harming the UK economy, triggering a slowdown in growth. Needless to say, if business across the country begins to slow, finding customers to lend money to could become quite challenging. So even if margins are up, overall profits could still fall.
So far, the evidence suggests inflation has already begun to level out. And assuming it stays that way, I think Lloyds could be one of the best UK shares for me to buy right now to profit from the more stable inflationary environment.
Should you invest £1,000 in Lloyds right now?
Before you consider Lloyds, you’ll want to hear this.
Motley Fool UK’s Director of Investing Mark Rogers has just revealed what he believes could be the 6 best shares for investors to buy right now… and Lloyds wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 shares that are currently better buys.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Unilever. 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.
