Inflation in the UK is growing at the fastest rate in nearly 10 years. The Consumer Prices Index (CPI) rose by 4.2% in the 12-month period to October 2021. It was up from 3.1% in September, a 1.1% jump in a month. But data suggests that equities are a decent way to counter moderate inflation. Rising material prices increase revenue, causing a share price jump. And Glencore (LSE: GLEN) and BP (LSE: BP) are two FTSE 100 shares I’d buy today for my inflation-proof portfolio to capitalise.
Both companies operate in sectors that could see revenue growth in the coming months and are established enough to use revenue effectively to upgrade operations.
However, it should be noted that the Bank of England (BoE) expects inflation to inch towards 5% at least until the second quarter of 2022. Although certain sectors offer some shelter against rising costs, sustained inflation could force an interest rate hike. And analysts expect the hike to materialise after the next BoE meeting in December.
Commodities hedge
Metals, mining, and energy sectors have historically outperformed inflation. And Glencore operates in all three. As one of the top producers of battery metals like copper and cobalt, the company could benefit a lot from rising commodity prices and the electric vehicle (EV) revolution.
The company also produces and markets coal. Coal is the largest source of global electricity, accounting for 37% of power generated. Given UK’s 12% increase in the energy price cap and the global coal shortages, prices could continue to rise in the coming months. And I think Glencore is uniquely placed to capitalise.
But even this seemingly inflation-proof UK share faces risks like rising labour costs and interest rate hikes. Also, smaller miners are capitalising on the lithium surge and could diversify into other metals with profits. And when production matches demand, prices will drop – pointing to the cyclical nature of the sector.
However, Glencore is on top of my watchlist of FTSE 100 shares that could beat the current inflation concerns.
Soaring oil prices
Crude oil prices are rising rapidly. The 2021 UK petrol crisis was a result of a surge in global oil demand. The crude oil barrel price has risen 15.2% since September and petrol prices touched 138.6p per litre in October in the UK – the highest since September 2012.
And BP has been using this revenue to invest in new, future-ready projects and massive share buyback programs. CEO Bernard Looney likened the oil supermajor to a “cash machine” and I agree. The company has been posting incredible figures, burning past analyst estimates. The share buyback program is valued at $2.65bn and will be rolled out by mid-2022.
Its share price is up 36% in the last 12 months. And I think the company can make a huge push towards its sustainability goals from the revenue it generates in the coming months.
But this is where I think things get tricky for BP. The pressure to reinvent hydrocarbon-based businesses will put a massive financial strain on the company over the next 10 years. And the inflation-driven revenue will slow down, causing investors to look at more environment-friendly investments and capitalise on the EV market as they are more secure long-term plays.
But, the global need for oil is still very strong and I think BP’s significant 4.62% dividend yield and revenue forecasts for 2022 make it a good buy for my UK inflation portfolio.
Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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