What to look for when seeking inflation-proof investments

? A common response is to buy companies with pricing power – companies that can raise their prices to offset higher operating costs. This sounds simple enough, yet exercising pricing power in practice is often much harder.

Inflation is a complex situation for investors. It’s one thing to have pricing power in theory, and another thing to implement it practically. Investors risk overpaying for companies that then struggle to put their pricing power into action.There are a few characteristics investors can look for when seeking out companies with durable pricing power.The packaging sector is a strong example.

The durability of pricing power, especially in the case of Amcor, is reflected in the steadiness of its profit margins and return profiles over a long period of time. The lessons from packaging companies and real estate portals can be applied in reverse to identify companies without the durability of pricing power.Banks are vulnerable because housing loans are the largest contributor to their earnings. There is little to differentiate between housing loans. Broadly, a loan from the ANZ is easily substitutable with one from Commonwealth Bank.

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