One lesson out of last month’s reporting season was that cost pressures are persisting for ASX-listed companies.

That’s the analysis from Wilsons equity strategist Rob Crookston, who argued that the biggest pressure for businesses at the moment is labour costs.

“For instance, Cleanaway Waste Management Ltd (ASX: CWY) reported a heightened number of job vacancies caused employee costs to rise +16% due to the need to pay more overtime and use more expensive labour hire contractors,” he said in a Wilsons memo to clients.

While in the longer term, inflation will settle down, according to Crookston, its effects can’t be ignored when deciding which ASX shares to buy at the moment.

“The near-term threat to profitability is… meaningful and we see further downside to margins from here, particularly in more cyclical sectors with less pricing power — e.g. retail, discretionary goods.”

So which are the best ASX shares to buy under such conditions?

Nothing beats setting your own prices

According to Crookston, “the best defence against cost inflation is pricing power”.

“High quality companies with resilient customer demand through the cycle and dominant market positions operating in attractive industry structures are best placed to protect their margins by raising prices.”

He named five such S&P/ASX 200 Index (ASX: XJO) stocks that the Wilsons team holds in its focus portfolio:

• CSL Limited (ASX: CSL)
• Resmed CDI (ASX: RMD)
• Telstra Group Ltd (ASX: TLS)
• Insurance Australia Group Ltd (ASX: IAG)
• Lottery Corporation Ltd (ASX: TLC)

CSL can set its own prices as the “dominant and lowest-cost player” in the international blood plasma industry, said Crookston.

“The market for immunoglobulin (IG) products is supply constrained, while underlying demand is highly defensive given IG is used to treat patients with a range of serious immunologic and neurologic diseases.”

Another medical player, ResMed, already has about 70% of the sleep apnea device market. According to Crookston, it’s on its way to supplying the entire market because its nearest rival, Koninklijke Philips NV (AMS: PHIA), is still hamstrung from a 2021 product recall.

Telstra, whose dominance goes without saying for most Australians, is “committed to raising prices annually (and cutting costs) to offset inflation”.

“Mobile net ads were strong in 1H23 in spite of higher prices, and the competitive setting is increasingly rational.”

In the recession-resilient insurance industry, IAG can name its own prices.

“Number 1 general insurer in Australia, which has been [raising] premium rates strongly to offset rising perils costs (albeit there is a timing lag to margins),” said Crookston.

“Even with higher premiums, customer retention rates remain high.”

He noted that The Lottery Corporation operates in a monopoly in every state except for Western Australia.

“Lottery sales have historically been [highly] resilient in economic downturns, and TLC has a proven ability to incrementally raise ticket prices over time.”

The post 5 ASX 200 shares that inflation can’t touch: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in CSL and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed and Telstra Group. 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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