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Earlier this week, data showed that in December, inflation fell to 10.5% from the previous month. For its part, the November reading of 10.7% was lower than the 11.1% of October. This is beginning to give me the impression that inflation in the UK may have peaked. If I continue to receive indications that this is the case over the next month, here are the FTSE 100 stocks that I think could beat the market in 2023.
Easing pressure on grocery prices
One clear group that will benefit is supermarkets and grocery stores. Last year, trade updates disappointed investors, as companies signaled that consumers were buying less due to the higher cost of food and beverages. For example, ocado noted a 13% decrease in average grocery basket value compared to the same period in 2021. On average, customers had 48 items in their basket, compared to 55 in the first half of 2021.
The share price of many in this sector fell last year as investors factored in lower earnings. However, if inflation continues to fall, we should see this correlate with rising retailer stock prices in this area. Supermarkets will not only be able to normalize operating profit margins, but shoppers will also likely feel more confident to buy more if they feel prices are under control.
I think this is one of the reasons that some stocks have already started to rise recently. Tesco shares are up 10% in the past month, with j sainsbury also gaining 9.3%.
Help with property prices
Another area that could benefit from lower inflation is real estate. For insights specific to the FTSE 100, I’m thinking right movement Y british land.
High inflation has forced the Bank of England to raise interest rates very quickly. This has put pressure on the mortgage market, with high rates making it unaffordable for many people to buy a home. In turn, this has been a factor driving down property prices.
If inflation falls materially lower, the situation should reverse. Interest rates will not need to rise any further. In any case, the forecasts could indicate some rate cuts in the coming years. For fixed-rate mortgage deals, this could mean lower, more attractive rates. If this allows more people to climb the property ladder, that’s good news for property-related businesses.
Rightmove should see increased website activity and more real estate agent listings. The British Land should experience an upward movement in the value of the portfolio.
Keeping an eye on FTSE 100 stocks
One risk is that inflation may fall, but at a slow pace. If it moves down just 0.2% each month, it will be a long time before it goes down to reasonable levels. So if it’s still above 10% several months from now, it could hinder the progress of the aforementioned stocks.
That’s why I’m putting the above ideas on my watchlist, but I’m going to wait and see how things play out in February. If it becomes clear that inflation is falling rapidly, I will add the stocks to my portfolio.
