Take a seat: What inflation data might mean for ASX retail shares

Sad woman on a sofa.Sad woman on a sofa.

Both headline and core inflation continue to push higher in Q1 FY23, the latest economic data shows.

Over the 12 months to June 30, the consumer price index (CPI) rose 6.1%, according to data released today by the Australian Bureau of Statistics (ABS).

That’s a full 100 basis points up from 5.1% year on year in the previous quarter.

The most significant price increases last quarter were new home purchases by owner-occupiers, automotive fuel, and furniture, the data shows.

However, year on year, the highest price increases are in transport (up 13%) and housing (up 9%), with food costs also 6% higher over the year.

Australia’s inflation rate is now at its highest mark in more than 20 years and, before that, its highest level since 1997, as seen below.

TradingView Chart

What does this mean for ASX retail shares?

As inflation continues to erode company margins downstream, the ability to pass through costs on to the end consumer is paramount.

Hence, companies with this ability will shine due to their earnings and margin resilience.

Further, with price increases in areas such as retail and furniture, there’s also the prospect of higher earnings for companies exposed to these industries.

As such, it’s unsurprising to see analysts at Macquarie rate Nick Scali Limited (ASX: NCK) highly on the radar. The furniture company recently acquired the Plush-Think Sofa business.

The broker rates Nick Scali a buy and values the company at $12.70 per share. It currently trades at $9.18 apiece after its share price gained 10% this past month.

Meanwhile, retail players are getting rewarded on the back of the inflation data as well.

The Temple & Webster Group Ltd (ASX: TPW) share price is currently 5.4% higher at $3.71. Investors are bidding the share up on a volume more than 50% of its four-week trading average.

Both of these shares have been heavily punished in 2022 so far with Temple & Webster, in particular, incurring a 70% loss over the last 12 months.

But it will take sustained gains for both to recover to their previous highs, as shown on the chart below.

TradingView Chart

The post Take a seat: What inflation data might mean for ASX retail shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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