Welcome to the 34th edition of the BKI Quarterly Report, prepared by Contact Asset Management (“Contact”).
Rising global inflation and ongoing supply chain disruptions are just two of the compounding challenges that are testing the resilience of corporations and investors alike. Indeed, inflation has become the dominant topic of our daily news. We believe the main issue for investors as we head into FY2023 is the monetary policy tightening underway by Central Banks. There seems to be a “whatever it takes” attitude to combat inflation. It appears that Central Bankers remain convinced that economies are strong enough to handle the perceived rate increases. The pace of rate hikes remains an overhang as does the level at which interest rates settle. The RBA, which increased rates again in early July to 1.35%, is hoping that it can burst the inflation bubble and settle rates below 3.5% by mid-2023. While this is a significant percentage increase from the pandemic low-rate environment, a rate of 3.5% is still very accommodative in a historical context.
In this Quarterly Report, we consider the likely impact on the Consumer Staples sector, which has historically been a relative safe haven in times of inflation. We revisit our store walk survey from seven years ago and discuss our positive view on Metcash Limited.
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