3 FTSE 100 stocks to protect my portfolio from high inflation

UK’s inflation has just reached levels that make Manika Premsingh uncomfortable, but three FTSE 100 stocks can protect her portfolio.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Uncomfortably high inflation is a global phenomenon today, driven by high commodity prices and reopening demand. But it has only just shown up in the UK. According to numbers released today, annual inflation touched 2.1% in May. 

This had me sit up and take note, for three reasons. One, inflation is now above the Bank of England’s target rate of 2%. If it persists, the BoE could start increasing interest rates. This could put economic recovery in danger. 

Two, the number exceeds economists’ expectations. This means that inflation may well throw up ugly surprises in the coming months too. Three, inflation has sharply increased compared to April’s levels of 1.5%, which shows the kind of increases possible.

Investing in times of inflation

None of these risks may materialise. A number of economists believe that high inflation is transitory. But there are those who do not. Whatever I believe as an economist, however, I don’t think it hurts me to buy FTSE 100 stocks that are possibly inflation proof and also double up as either growth or income stocks or both. 

I think there are two broad categories of FTSE 100 stocks that will remain unaffected by inflation. The first is companies whose products’ prices are already rising. In other words, they are gaining from inflation. The second is companies that can easily pass on these price increases. 

FTSE 100 oil stocks to the rescue

In the first category are commodity stocks. Prices of commodities like oils and metals have been on the rise. As economic activity amps up through this year, it is possible they will rise further. Just today, there is a fresh report that oil prices could rise to $100 a barrel

As an investor in the two big FTSE 100 oil companies BP and Royal Dutch Shell, I follow their developments closely. And their first quarter results were proof of how oil price increases can turn their fortunes around. Both companies have paid generous dividends in the past and I think they will continue to pass on their financial good fortune to investors in the future. Besides this, their performance should also add to increases in their share prices. They have not been great growth stocks in the past, but I reckon that could change now. 

High-end retailers can pass on prices

In the second category is FTSE 100 luxury stock Burberry, which I also own. Its demand can be impacted by a slowing economy but less so by the level of inflation we have seen so far. I reckon it can pass on price increases more easily to consumers than retailers in lower price brackets. 

Also, an improved economy will increase demand for its products. It has already expressed optimism about this year, which is unlikely to be dented by inflationary concerns. The only downside I see here is that Burberry’s share has already run up quite a bit. This means it may grow slowly from here, but I am prepared to hold it for the long term. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of BP, Burberry, and Royal Dutch Shell B. The Motley Fool UK has recommended Burberry. 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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Is a stock market crash coming? And what should I do now?

Global investors are panicking about a new US stock market crash in the days or weeks ahead. Here's how I'm…

Read more »

Investing Articles

FTSE shares: a brilliant opportunity for investors to get rich?

With valuations in the US looking full, Paul Summers thinks there's a good chance that FTSE stocks might become more…

Read more »

Growth Shares

2 FTSE 100 stocks that could outperform the index in 2025

Jon Smith flags up a couple of FTSE 100 stocks that have strong momentum right now and have beaten the…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

1 stock market mistake to avoid in 2025

This Fool has been battling bouts of of FOMO recently, as one of his growth shares enjoys a big bull…

Read more »

Investing Articles

2 no-brainer buys for my Stocks and Shares ISA in 2025

Harvey Jones picks out a couple of thriving FTSE 100 companies that he's keen to add to his Stocks and…

Read more »

Number three written on white chat bubble on blue background
Investing For Beginners

3 investing mistakes to avoid when buying UK shares for 2025

Jon Smith flags up several points for investors to note when it comes to thinking about which UK shares to…

Read more »

Investing Articles

Will the rocketing Scottish Mortgage share price crash back to earth in 2025?

The recent surge in the Scottish Mortgage share price caught Harvey Jones by surprise. He was on the brink of…

Read more »

Investing Articles

2 cheap shares I’ll consider buying for my ISA in 2025

Harvey Jones will be on the hunt for cheap shares for his ISA in 2025 and these two unsung FTSE…

Read more »