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Inflation picked up last month as the cost of groceries, gas, and used cars rose, reinforcing the Federal Reserve’s cautious stance on interest rate cuts. The Consumer Price Index (CPI) increased by 3% in January compared to a year ago, according to a February 12 report from the Labor Department. This marks an uptick from 2.9% in December, and above market forecasts of 2.9% and a climb from the 3 1/2-year low of 2.4% recorded in September.
The latest data highlights the ongoing challenge of inflation, which previously posed a significant political issue for former President Joe Biden. During his campaign, President Donald Trump pledged to bring prices down. However, economists caution that his proposed tariffs could temporarily drive costs higher rather than lower them.
On a monthly basis, the CPI grew by 0.5%, above 0.4% in the previous month and expectations it would slow to 0.3%. The index for shelter rose 0.4%, accounting for nearly 30% of the increase. Against this backdrop, below we highlight a few exchange-traded fund (ETF) investing strategies that can be gainful for investors.
Play Inflation-Fighting ETFs
In the past one year, Wall Street has seen launches of several inflation-fighting ETFs like AXS Astoria Inflation Sensitive ETF PPI, VanEck Inflation Allocation ETF RAAX and Horizon Kinetics Inflation Beneficiaries ETF INFL. Some of these ETFs invest in asset classes that look to benefit, either directly or indirectly, from inflation while some invest directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve.
Play ETFs That Protect You From Higher Rates
In reflection of the sticky inflation data, the benchmark 10-year U.S. treasury yield jumped to 4.62% on Feb 12, 2025 from 4.54% recorded at the start of the month. The two-year U.S. treasury yield too jumped by 10 bps to 4.36% during this timeframe.
Against this scenario, ETFs that offer protection from higher rates should be in vogue. These ETFs include Simplify Interest Rate Hedge ETF PFIX, Global X Interest Rate Hedge ETF RATE and FolioBeyond Alternative Income And Interest Rate Hedge ETF RISR.
Gold to Save You This Time Despite High Rates?
Gold market is in the sweet spot currently despite higher rates. Gold is often viewed as a safe-haven as well as inflation-beating asset. Hence, the current market backdrop serves well for gold investing. The largest gold bullion ETF SPDR Gold Trust GLD was up 0.1% on Feb. 12, 2025, while the fund has gained about 9% so far this year.