No doubt share investors are sick of hearing it by now, but higher costs for everything and rising interests will dominate market fortunes for the foreseeable future.
According to T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, the current situation bears similarities to the 1970s "stagflation" era.
"Headlines feature daily around the rising cost of fuel, electricity and commodity prices," he said.
"At the same time, a tight labour market sparks worries of a wage-price spiral and broader fears of a hot and embedded inflation that will be difficult to cool."
Thankfully, though, there are some differences. For example, the energy shortage is much more acute in Europe this time, as the US is a net exporter — not an importer as it was back in the 1970s.
"Consumer and corporate balance sheets are also stronger… The lessons from the stagflation period are still very real in the minds of central bankers and they are likely to do whatever possible to ensure we do not repeat history," said Jenneke.
"With this in mind, we view a stagflation replay as only a 15% to 20% chance."
Regardless, investors still need to be careful.
Jenneke suggested buyers of ASX shares need to move their focus from revenue growth to margin sustainability.
"A repeat of the 70s stagflation era is not our base case. However, the parallels continue to grow."
Nothing beats setting your own prices
So which businesses can protect their margins in times of rising input costs and cooling consumer sentiment?
"Those that can better manage through this period will likely be companies with strong pricing power," said Jenneke.
"To pass on costs effectively to buyers requires a good industry structure, differentiated products and defensive volumes."
The T Rowe Price team reckons the healthcare industry fulfils many of those criteria.
Jenneke singled out one name in particular.
"Resmed CDI (ASX: RMD), for example, has a large underpenetrated market," he said.
"And despite various input and logistics cost pressures, has been able to pass through price increases given their dominant market share and current lack of reputable competition."
Infrastructure also has the pricing power that Jenneke's analysts are currently seeking.
"Transurban Group (ASX: TCL), for example, has built-in price increases for its contracts. The nature of its cost structure brings high EBIT margins and margin stability," he said.
"Anecdotally, you know the cost of tolls are rising when every second taxi driver makes a point or two about it."
One important note about these ASX shares is that Jenneke very much likes the businesses independent of the economic headwinds.
"Another lesson from the 1970s is that the global macro picture does not trump company fundamentals," he said.
"For example, both the US and UK faced a similar stagflation narrative. However, UK banks performed terribly amid a severe property price crunch, while their US peers outperformed."
