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5 ETF Ways to Trade 6-Year High U.S. Inflation

Sanghamitra Saha
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Consumer prices in the United States grew 2.8% year over year in May 2018, above market expectations of 2.7%. It also marked the highest inflation rate since February 2012. Higher cost of gasoline and shelter led to the estimate beat.

Sequentially, consumer prices grew 0.2%, in line with expectations and data recorded in April. Barring food and energy, prices went up 0.2% in May, higher than 0.1% in April but in line with market forecasts.

Inflation has been on an uptrend recently thanks mainly to higher oil prices. WTI crude ETF United States Oil USO is up about 11% this year as concerns over supply crunch are doing rounds.

The Fed also showed confidence in the built-up over PCE inflation over the medium term. PCE inflation expectations were upped from 1.9% to 2.1% for 2018 in the latest June meeting and 2.0% to 2.1% for 2019 but were kept intact at 2.1% for 2020. Core PCE inflation for 2019 and 2020 were the same while it was rasied to 2.0% from 1.9% for 2018 (read: Fed Turns Hawkish: ETF Areas to Win).

Against this kind of an inflationary environment, investors can bet on these ETF areas.

Consumer Staples –  iShares Edge MSCI Multifactor Consumer Staples ETFCNSF

Like many analysts, we also believe that consumers have to bear the brunt of a high inflation rate in the economy. This is because companies will try to pass on the higher input costs to consumers. However, amid lower purchasing power, consumers may cut back on some discretionary purchases, but staples should hold their head high as the sector is non-cyclical in nature. Such a trend can be ridden out by investing in CNSF (read: Wal-Mart's Solid Q1 Results Put These ETFs in Focus).

Healthcare – Health Care Select Sector SPDRÂ ETF (XLV)

This is another safe sector, which should thrive despite a jump in inflation. Plus, in May, year-over-year price inflation was notable in medical care services (2.3% from 2.2%) and apparel (1.4% from 0.8%) and medical care commodities (2.7% from 1.9%). This calls for a look at this healthcare ETF (read: Play the Best Sector of Summer With These ETFs & Stocks).


TIPS offers robust real returns during inflationary periods, unlike its unprotected peers in the fixed-income world. These securities pay an interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both, principal amount and interest payments, will keep on rising with increasing consumer prices.

As a result, the top 10 TIPS ETFs hauled in a record $1.2 billion inflow last week, according to a JPMorgan Chase & Co (read: Rising Inflation Fuels Demand for TIPS ETFs).

Gold – SPDR Gold Shares (GLD)

Gold is commonly viewed as an inflation-protected asset. An increase in inflation can favor gold investing. So, if the greenback remains low as the Trump administration wants to have a trade advantage from it, gold can gain ahead.

Real Estate – iShares Mortgage Real Estate Capped ETF (REM)

Since the year-over-year inflation in shelter costs (3.5% compared to 3.4%) was noteworthy, this real estate ETF should benefit from the trend. Plus, demand for real estate should grow in a fast-growing U.S. economy.

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GOLD (LONDON P (GLD): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
ISHRS-EMS MCS (CNSF): ETF Research Reports
REITS/MORTGAGE (REM): ETF Research Reports
SCHWAB-US TIPS (SCHP): ETF Research Reports
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