Inflation Alert: Canadian Prices Are Soaring!

Inflation is on the rise and Suncor Energy (TSX:SU)(NYSE:SU) could profit from it.

| More on:

Canada’s inflation rate hit its highest level in years. At 3.4%, it was the biggest increase in prices since 2011. The figure mirrored a similar trend in the U.S., where commodities like gasoline, lumber and steel rose dramatically in the first half of the year. In this article, I’ll explore Canada’s abrupt inflation spike and whether consumers can expect it to continue.

Where’s the inflation coming from?

The high level of inflation reported in April was driven by commodities like:

  • Oil & gas
  • Lumber
  • Furniture

Other products and services were less affected, including:

  • Clothing, up just 1.8%
  • Cellular services, down 10%

For the most part, it looks like a few products are driving most of the inflation we’re seeing. Gasoline and lumber have risen markedly in price, and other products less so. There have even been a few items that have declined in price. Gasoline–one of the items that has risen the most–has historically been volatile, going up and down over time. So it’s hard to say whether the increase in inflation is a trend or just a temporary blip on the screen. Only time will tell.

Is this unusual?

While 3.4% inflation might appear unusual, it’s actually not. The thing is that inflation got close to zero (sub-1%) last year, when the pandemic forced businesses to shut down. Faced with a shutdown, many people were put out of work, which reduced demand. At one point, oil prices (as measured by West Texas Intermediate) went negative, but later shot up at a record pace.

This kind of thing is pretty common in the aftermath of recessions. During recessions, people tend to cut back on spending, and may save whatever aid they get from the government. Disinflation, or even deflation, can occur, creating pent-up demand that comes roaring back when the economy comes back to life. The last time it happened (prior to this year) was after the great recession of 2008/2009. It happened after the Great Depression as well.

A stock that profits from inflation

While inflation is bad for consumers, it’s great for investors, or at least, for investors in stocks that profit from inflation such as Suncor Energy (TSX:SU)(NYSE:SU). Suncor is a company that drills for oil and sells it in the form of gasoline. As a fully integrated energy company, it should make more money the higher the price of gasoline goes.

So far this year, it has indeed been making more money than last year. In the first quarter, Suncor Energy earned $821 million, compared to a $3.5 billion loss in the same quarter a year before. The higher the price of gasoline goes, the higher SU stock climbs. Suncor could therefore be a decent way to hedge against inflation.

Foolish takeaway

Inflation is always a scary thing to think about. But it needn’t be scary in reality. Higher prices are a sign that demand is picking up. In light of this, you could look at inflation with optimism, as a healthy sign that the economy is coming back to life. And of course, you can always look at stocks like Suncor Energy as tools to hedge against its worst effects.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »