Higher inflation has been on the radar for Canadians since the beginning of the year. Initially, the Bank of Canada was focused on alleviating concerns that a surge in fiscal and monetary stimulus would have this impact. However, a spike in oil and gas prices saw inflation really take off in the opening months of the year. Today, I want to discuss that rise and zero-in on two TSX stocks that are worth buying in this environment.
Inflation has climbed to a 10-year high in Canada
In late May, I’d warned investors about this ongoing trend. Statistics Canada unveiled more data on this front last month. Canada’s inflation rate rose to 3.6% in May. This represented the fastest inflation pace in a decade.
The cost of shelter climbed 4.2% year over year in May. Much has been made of the rising cost of housing across Canada. Indeed, real estate prices have jumped 30-40% year over year in some of the hottest metropolitan areas. Meanwhile, the cost of furniture and appliances has also increased by 4.4% — the fastest pace for durable goods since 1989.
Predictably, the biggest influence on inflation was rising gasoline prices. Gas jumped 43% from the prior year. However, this is somewhat deceptive, as prices cratered last May in response to sinking demand in the thick of the COVID-19 pandemic.
Why these TSX stocks are perfect in an inflationary environment
Food prices were set to experience an increase in 2021. However, this category only climbed 1.5% in the month of May. In late June, I’d recommended grocery TSX stocks as a premium target in this climate. After all, the Canada Food Price Report in late 2020 projected that food prices would increase between 3% and 5% in 2021.
Metro (TSX: MRU) is a Montreal-based grocery retailer. Its shares have climbed 3.7% in 2021 as of early afternoon trading on July 8. The TSX stock is up 5.4% from the prior year.
The company unveiled its second-quarter fiscal 2021 results on April 21. Sales jumped 5.1% from the prior year to $4.19 billion. Meanwhile, food same-store sales rose 10.1% in the first 10 weeks of the quarter. Adjusted net earnings climbed 6.5% year over year to $194 million.
Shares of Metro possess a solid price-to-earnings (P/E) ratio of 18. Metro offers a quarterly dividend of $0.25 per share. That represents a modest 1.6% yield.
Empire (TSX: EMP.A) is another top food retailer. It owns and operates brands like IGA, Sobeys, and Farm Boy. Shares of this TSX stock have climbed 12% in the year-to-date period. The stock is up 20% from the same time in 2020.
In its Q4 FY2021 earnings report, Empire revealed that same-store sales, excluding fuel dropped 6.1% from Q4 FY2020. Regardless, it was still a positive quarter and a very strong year for Empire. Sales increased $1.68 billion year over year to $28.2 billion for the full year. Meanwhile, gross profit jumped $566 million to $7.19 billion.
This TSX stock last had a favourable P/E ratio of 15. Its annual dividend per share has climbed 15.3%. Empire currently offers a quarterly dividend of $0.15 per share, which represents a 1.5% yield.
