Rising Prices, Who Benefits From Inflation?
Many UK households And businesses Are Struggling With Rising Prices But That’s Not The Story For Everyone
The fastest increase in the cost of living in four decades means that households must now spend £110 to get what £100 purchased them last year
However, certain industries are profiting from increasing inflation and making record profits. If you’re in the business of drilling for oil, trading wheat, delivering toys, or selling exquisite wines, you can make a lot of money.
So, who benefits from the increased spending?
Energy Titans
Companies that extract and process fossil fuels have made news recently due to high earnings. Because of increased demand and supply concerns following Russia’s invasion of Ukraine, wholesale gas prices have skyrocketed on international markets, while oil prices have lingered above $100 per barrel.
Between April and June, Saudi Arabia’s Aramco reported record profits, while BP made £6.9 billion and Shell made £9 billion worldwide.
Centrica, British Gas’ parent business, has witnessed profits more than fivefold increase thanks to its oil, gas, and nuclear assets.
However, there are numerous businesses in the UK that receive less attention. Harbour Energy is one of the largest North Sea producers. The company expanded by acquiring oil and gas operations and is now profitable.
Meanwhile, Neptune Energy, which generates around 12% of the UK’s gas, saw revenues double last year, allowing it to return $1 billion in dividends to its investors. Other major producers are Israel’s Ithaca and Norway’s Equinor.
All of these corporations will be subject to the government’s 25% windfall tax on profits made from producing UK oil and gas, which is intended to help households cope with rising costs. Domestic extraction, however, is only a minor part of the operations of the majority of the energy behemoths.
For example, the UK accounts for just a tenth of BP’s overall oil and gas production.
However, due to the manner they purchase wholesale energy, some businesses have yet to gain from increased oil and gas prices.
These firms set prices in advance to protect themselves against large price changes in the market, a process known as hedging.
Mining
Coal is suddenly regaining popularity as countries seek alternatives to Russian gas.
This is paying off for mining companies that have specialised in ‘dirty’ fossil fuels.
Glencore’s thermal coal division profited from record prices, doubling to more than £15 billion in the first half of 2022.
Many of its competitors have abandoned coal, but Glencore has claimed that it will be a vital fuel in some countries’ transition to greener forms of energy generation and that it will look to reduce production over the next few decades.
With fears of gas supply disruptions from Russia to Europe this winter, the government has requested energy companies to postpone the shutdown of UK coal-fired power stations.
Due to Russia’s stoppage of pipeline flows, German utility Uniper stated on Monday that it will begin producing electricity for the market at its backup coal-fired power station Heyden 4.
Food Commodity Traders
Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus aren’t household names, but their goods are ubiquitous on dinner tables throughout the world. The “ABCDs” are the leading traders of food commodities, particularly grain.
During times of global disruption, these supply chain middlemen can play an important role in ensuring that food supplies get where they are needed, such as assisting countries in locating alternative sources of wheat in the face of disruptions to shipments from Ukraine and Russia.
However, due to the disturbance, wheat prices are currently 25% higher than a year ago. Many other necessities have risen in price.
ADM’s last quarterly profits increased by 60%. Bunge fared less well but is upbeat about the rest of the year. In the most recent fiscal year, Cargill’s revenues increased by 23% to a record $165 billion (£140 billion). It claims to have donated $163 million to humanitarian relief and other good causes, which amounts to 0.1% of revenues.
Shipping Companies
Pandemic shutdowns may have damaged economies and supply networks, but they improved shipping companies’ fortunes.
Freight prices skyrocketed and have stayed high since consumer goods demand spiked during Covid lockdowns. Ports became clogged as a result of the restrictions, and new shipbuilding projects were delayed.
According to Drewry, the container-shipping business will have made a half-trillion-dollar profit in the last two years by the end of 2022.
Because of the prolonged disruption at ports, the world’s second-largest container shipping business, AP Møller-Maersk, raised its annual profit prediction for the third time this year, saying “normalisation” of rates may now take till the end of the year.
Luxury Watch And Fine Wine Retailers
For those with spare cash, the combination of rising prices, low-interest rates, and slowing economic development make it tough to find acceptable returns on traditional investments.
They’re looking elsewhere. According to Knight Frank, the value of investments in fine wines and luxury watches increased by 16% last year, art by 13%, and whiskey and coins by 19%.
Investors were betting that collectables will outperform inflation, and that trend has continued into this year. Bordeaux Index, the world’s largest fine wine trader, reported a 37% increase in sales in the year to June.
Inflation, on the other hand, may leave a sour taste in the mouth of the rest of us.
Online sources: bbc.co.uk
All opinions and views expressed or suggested by the Digital Zeitgeist are not necessarily the same opinions and views held by or suggested by GPM-Invest plus any and all partners, affiliates, parties, or third parties of GPM-Invest. Any type of media distributed by GPM-Invest IS NOT financial advice. Please seek advice from a professional financial advisor