Consider These ETF Strategies to Tackle Hot Inflation Data

Rising inflation levels continue to be a concern for the U.S. economy. Per the latest Labor Department report, the Consumer Price Index (CPI) in December rose 7% year over year, on par with the Dow Jones estimate, according to a CNBC article. The metric came in at the highest level since June 1982 and covers a basket of products, ranging from gasoline and health care to groceries and rents. It also increased 0.5% for the month, surpassing the 0.4% Dow Jones estimate. The soaring food, shelter and used vehicle prices might be primarily responsible for the higher inflation levels.

Excluding food and energy prices, the core CPI was up 0.6%, worse than the estimate of 0.5%. Annual core inflation also increased at a 5.5% pace, in comparison with the 5.4% expectation and came in at the highest level since February 1991 (per a CNBC article).

The Federal Reserve has considered constrained labor availability the major reason for supply crunches. With higher chances of rising omicron cases and winter conditions in the northeast region, the labor shortage may remain and put increased pressure on prices (per a CNBC article).

Going on, considering the consistently hot inflation readings, the central bank has already started tapering bond purchases, which it expects to complete by March. The Fed is expected to begin raising its benchmark interest rate in March. The Federal Reserve may take a more aggressive approach in raising interest rates. In fact, Goldman Sachs (NYSE:GS) is expecting the Federal Reserve to increase interest rates four times this year, according to a CNBC article.

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

Considering the current scenario, gold prices have been rising. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Going by an ETFs to Win or Lose on Hawkish Fed Minutes ).

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Written By: Zacks Investment Research