‘Price makers’: 3 ASX 200 shares that can pass on rising costs in an inflationary environment

Inflation is widespread in the economy. But some businesses are raising prices to compensate.

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Key points

  • With inflation rising in Australia and around the world, some businesses are struggling
  • However, some ASX 200 shares can easily pass on higher costs as price increases
  • NAB, Xero, and APA are three examples of businesses doing just that

Inflation is an economic challenge that many S&P/ASX 200 Index (ASX: XJO) shares — and households — are facing.

We’ve seen rises in commodity prices, transportation costs, supply chain challenges, faster-growing wages, and so on. Some businesses aren’t able to pass on the higher costs, resulting in profit margins being hurt.

Investment group Blackstone has indicated that it’s going to avoid businesses that aren’t able to pass on rising costs in the form of higher prices.

According to reporting by The Australian, Blackstone’s senior managing director Michael Blickstead said that inflation is the group’s main concern. Within its own investment portfolio, and potential investments, Blackstone is looking at what it can do to mitigate the issues.

Some ASX 200 shares may not be able to pass on the higher costs and they will simply have to deal with lower profitability. That’s tough luck for them, which may explain some of the declines we’ve seen in the last few months, along with interest rate rises.

But, there are a few names that are able to pass on increases to their customers or clients, such as the three below, which can be called ‘price makers’. That’s where the companies get to decide their prices.

National Australia Bank Ltd (ASX: NAB)

NAB is one of the big four ASX banks along with Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and Australia and New Zealand Banking Group Ltd (ASX: ANZ).

It’s no secret the Reserve Bank of Australia (RBA) is increasing interest rates with more rises expected to follow. The RBA’s latest move was a 50 basis point increase.

If NAB (and the ASX 200 big bank shares) didn’t increase the interest rates charged on loans then it would hurt the bank’s net interest margin (NIM). The NIM is an important measure of bank profitability.

But, NAB did pass on the 50 basis point increase to borrowers. In fact, it passed on the whole rate rise very soon after the RBA’s announcement.

Brokers like Morgans and Morgan Stanley think the bank NIMs will rise as interest rates increase. However, there’s also a question of how much the rate increases hurt loan books and increase arrears.

Xero Limited (ASX: XRO)

Xero is one of the largest ASX tech shares, but it’s now a fair bit smaller this year after a plunge of the Xero share price of around 50%.

While Xero doesn’t focus on commodities or supply chains, it still has a cost base.

The ASX 200 share has recently announced that it’s going to increase its subscription prices in some of its important markets including the UK, Australia, and New Zealand, with some subscriber levels seeing high single-digit price increases.

APA Group (ASX: APA)

APA is one of the largest infrastructure businesses in Australia. It owns a national network of gas pipelines that transport half of Australia’s natural gas usage.

It also owns investments in renewable energy generation, gas storage, and gas power generation.

The ASX 200 share says that it’s “favourably exposed to rising inflation with almost 100% of contracted revenues linked to inflation indices”.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended APA Group and Xero. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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