The Wesfarmers Ltd (ASX: WES) share price has gone up by around 6.6% in November, which compares to a 6% rise for the S&P/ASX 200 Index (ASX: XJO).
It has been a solid period for a number of ASX shares, including Wesfarmers.
The business is the owner of a number of retail businesses that are recognisable in Australian shopping centres or on the main roads such as Bunnings, Kmart, Officeworks, Target and Priceline.
Inflation and rising costs remain a key factor
Investors are trying to weigh up how inflation and higher interest rates are going to impact earnings and what this could mean for the Wesfarmers share price.
The Australian Financial Review CFO Live Summit was held earlier this week, with the Wesfarmers chief financial officer Anthony Gianotti making an appearance. It was noted by the AFR that there is growing pressure on Wesfarmers to "keep prices steady and deliver for an increasingly value-conscious consumer".
As noted by the newspaper, Wesfarmers is having to juggle a number of things such as changing capital costs, changing supplier costs and adjustments to industrial relations (IR).
Wesfarmers is trying to find the right level of passing on some costs to customers and trying to find efficiencies and savings so it can keep prices low to try and win market share.
According to the reporting, prices for materials for some of Wesfarmers' products are starting to "normalise", though higher than pre-COVID levels. But, it may take time before improvements in the supply chain issues flow to the wider economy.
Another factor is wage growth. The boss of Wesfarmers, Rob Scott, has reportedly been supportive of wage rises. Widespread wage growth could be a boost for Wesfarmers' earnings.
October inflation not as strong as expected
Just before the end of the month, the AFR reported that annual inflation reduced to 6.9% in October, which was lower than the expected 7.6% figure.
It was reported that the less-than-expected increase was due to a decline in food prices, particularly fruit and vegetables, as well as holiday costs and accommodation.
However, the higher energy bills as well as the impacts of floods on grocery prices weren't reflected in the inflation number yet.
The BetaShares chief economist David Bassanese was quoted saying:
Underlying inflation pressures appear to be cresting. At face value, this strengthens the case for the RBA to consider a potential pause in its rate hike campaign after next week's likely eighth rate hike this year.
Investors becoming more optimistic on the Wesfarmers share price
The broker UBS recently increased its price target on Wesfarmers to $56, which represents a potential rise of around 15%. It thinks businesses like Kmart and Bunnings can excel during this difficult period.
On the broker's numbers, Wesfarmers shares are valued at 22 times FY23's estimated earnings.
