Consider These ETF Strategies to Tackle Hot Inflation Data

This story originally appeared on Zacks

High levels of inflation remain a concern for the US economy. According to the latest Labor Department report, the Consumer Price Index (CPI) in December rose 7% year-on-year, on par with Dow Jones estimates, according to a CNBC article. The gauge came in at the highest level since June 1982 and covers a basket of products, ranging from gasoline and health care to groceries and rentals. It also rose 0.5% for the month, topping the Dow Jones estimate of 0.4%. The high prices of food, shelter and used cars may be primarily responsible for the high levels of inflation.

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Excluding food and energy prices, core CPI rose 0.6%, worse than the estimate of 0.5%. Annual core inflation also rose at a pace of 5.5%, compared to a forecast of 5.4% and came in at the highest level since February 1991 (according to a CNBC article).

The Fed considered constrained labor availability to be the main cause of the supply crunch. With increased chances of omicron cases rising and winter conditions in the Northeast region, labor shortages may persist and put further pressure on prices (according to a CNBC article).

Taking into account the constantly hot inflation readings, the central bank has already begun to scale back its bond purchases, which it expects to complete by March. The Fed is expected to start raising the benchmark interest rate in March. The Federal Reserve may take a bolder approach to raising interest rates. In fact, Goldman Sachs expects the Federal Reserve to increase interest rates four times this year, according to an article on CNBC.

Notably, the hot inflation data has forced investors to look for alternative investment options that may be better off than cash or bonds in an inflationary environment. Moreover, some companies with pricing power may take a hard hit amid inflation and future earnings may look less attractive amid higher inflation levels. Against this background, let’s take a look at some ETF trades that can be considered:

Gold ETFs to hedge against inflation

Looking at the current scenario, gold prices rose. The inflationary background in the US is favorable for gold as the metal is seen as a hedge against inflation. Referring to an article on, Commerzbank also expects 2022 to be a favorable year for gold. The report also stated that “in the United States, inflation is currently at its highest level in 39 years at 6.8%, in Germany at more than 5%, the highest level in 29 years, and in the euro area at 4.9%, the highest level since the beginning of the monetary union in 1999.”

The report stated, “This means that market participants do not expect inflation to return to the Fed’s 2% inflation target in the medium to long term. If high inflation becomes entrenched and central banks fail to respond adequately to it, it is likely that gold will benefit from this as a hedge.” From inflation. According to a study conducted by the World Gold Council, gold is characterized by its price performance in the stages of high inflation (inflation> 5%). Even with inflation rates between 2% and 5%, the performance of gold is still remarkably positive.”

Gold ETFs mostly move in tandem with gold prices. the SPDR Gold Shares GLD and iShares Gold Trust IAU are some popular ETFs (read: play this new ETF PPI to beat inflation).

TIPS ETFs at Rescue

TIPS ETFs offer solid real returns during periods of inflation, unlike their unprotected peers in the fixed income world. It provides shelter from rising prices and protects long-term income. While there are many options in the space to take advantage of higher consumer prices, we’ve highlighted this iShares TIPS Bond ETF TIP and Schwab US TIPS ETF SCHP, which can be compelling investment options. Both TIP and SCHP have a high-risk outlook (read: Why buy re-open ETFs on the dip?).

Bitcoin Gaining Fame as “Digital Gold”

According to a report by The Guardian, bitcoin is generally seen as an alternative to a traditional safe investment – gold. Some analysts also expect to see stiff competition between both assets in the near future. According to market analysts, retail interest in bitcoin as a form of digital gold may soon be seen growing. In fact, after the release of hot inflation data, investors can look at the first fund that tracks ProShares Bitcoin Strategy ETF BITO, which rose 0.4% on November 10 (read: ETFs win or lose in hawkish Fed minutes).

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SPDR Gold Stock (GLD): ETF Research Reports

iShares Gold Trust (IAU): ETF Research Reports

iShares TIPS Bond ETF (TIP): ETF Research Reports

Schwab US TIPS ETF (SCHP): ETF Research Reports

ProShares Bitcoin Strategy ETF (BITO): ETF Research Reports

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Zacks Investment Research


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