Benefits of High Inflation

Benefits of Inflation: Top 4 industries that benefit.

Over the few years, the world has experienced a lot. The global pandemic disrupted industries, supply chains, daily life, demographics, etc. During covid-19, most industries suffered a lot, and some industries like healthcare, daily necessities, etc. did well. After two years of fighting, now the world started recovering from the pandemic. But then, a few series of incidents brought a new problem for the global economy. With the Russia-Ukraine war and lockdowns in China, many economies are now experiencing high inflation.

Inflation refers to an economic condition where the prices of commodities increase at a higher rate and results in people losing their purchasing power. The reason India and other economies are experiencing high inflation is because of various factors. These factors include most central banks injecting a lot of money to encourage economic activities, the Russia-Ukraine war, and re-lockdowns in China, which resulted in high inflation whereas Gold is no more hedge against inflation.

High inflation in a country refers to the rise in prices of commodities which ultimately results in a reduction of demand and growth of a particular sector. The performance of industries, equity markets, etc. suffers a lot during inflationary conditions. But it is not true for all sectors of an economy. While most industries suffer, few sectors benefit from high inflation. Let us discuss four industries that perform well during inflation:

Industries that perform well in high inflation:

  1. Energy: The energy sector includes oil, gas, and fuel-related businesses. These types of businesses can maintain high-profit margins. Also, the Russia-Ukraine situation has resulted in a significant rise in oil prices, but the demand stayed the same. It is because the energy sector is an essential industry for most of the crucial aspects of daily life like transportation, cooking, etc.

  2. Healthcare: Even during the Covid-19, healthcare was a sector that had a great growth curve. Healthcare is needed daily, from small medical help to curing deadly diseases like covid, cancer, etc. And many innovations happen in this sector that has a revolutionary impact on the world. For example, recently, a drug gave 100% results to cure cancer in its trial. Because of such crucial importance of this sector, people will use this sector even if prices increase. So, this sector has the potential to perform well during inflation.

  3. Real estate: The value of real estate properties increases with time and the rental income also increases during inflation. Ultimately, resulting in increased wealth for people. And people keep buying properties, irrespective of the prices of the properties.

  4. Finance and Banking: Any bank with a high CASA % will perform well during high inflation. Some big names to mention are HDFC and Kotak Mahindra Bank. The financial service sector will be a well-performing sector because the capital requirements of companies will rise due to an increase in the prices of raw materials. It makes the finance and banking sector a clear winner during high inflation.

All these sectors historically have performed well during inflation. Also, the current factors indicate the same, But in the world of finance and economics, anything can happen. So, invest after doing proper research.

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