After the latest round of U.S. consumer price index (CPI) numbers, which came in cooler than expected, we’ve heard a bit of chatter about deflation. Indeed, if the U.S. Federal Reserve (the Fed) and Bank of Canada (BoC) overtightened, disinflationary pressures (falling inflation) may very well push inflation below zero at some point down the road. Undoubtedly, the rise of artificial intelligence (AI), which could really jolt productivity over the coming years, could act as a deflationary force.
Amid alarmingly high levels of inflation, few folks could even think about deflation. Though rapid-fire rate cuts and price drops may not be in the cards overnight, I think that talks of a slower economy and deflation could be the major theme for 2024. Indeed, the tables could turn rapidly, and if they do, investors should have a game plan in place so they’re ready to do well, regardless of what the economy throws their way.
Deflation, disinflation, inflation: What’s up next?
We’ve been through an inflationary surge. What comes after is a complete mystery. Whether it’s 2% inflation (that’s seen as the healthy target), inflation slightly above 2%, or inflation well below 2% (or even negative), we’ll surely be in for plenty of surprises over the next two to three years. It’s been a wild ride and one that investors should commit to staying on, as the market’s next chapter unfolds.
Indeed, deflation sounds like a good thing after years of watching the costs of living surge through the roof. Falling prices, even if it means a sluggish economy, may even sound better than 2% inflation. That said, deflation isn’t necessarily a good thing. And like inflation, it may prove difficult to break out of a deflationary spiral if we fall into one. Undoubtedly, deflation may be welcomed by some consumers fed up with price increases, but it represents another problem entirely.
As prices fall and demand wanes, employers may have the incentive to continue to reduce their labour forces, which, in turn, could drive prices even lower. Though deflation seems less likely, investors must always be ready to roll with any punches. In this piece, we’ll check out one stock I view as an intriguing way to play disinflation (or deflation).
Restaurant Brands International
Restaurant Brands International (TSX:QSR) is a fast-food firm behind some of my favourite brands. It’s behind Canadian icon Tim Hortons, beloved burger chain Burger King, fried chicken kingpin Popeyes Louisiana Kitchen, and new addition Firehouse Subs. The company sells some pretty tasty meals for a pretty modest price.
Add value menus and loyalty app savings into the equation, and QSR stands out to be a winner if the economy stalls for a long duration. If money gets tight and deflation ensues, I think QSR will do just fine. If anything, it may do even better as its meals are already a great deal to begin with. In that regard, QSR need not reduce prices to maintain solid demand.
With a nice 3.12% dividend yield, QSR stock looks like a solid way to play the fall of inflation. Just how much inflation falls from here, though, remains to be seen.
