Core Inflation Strengthens! Grab These 5 Winners Now
Zacks Investment Research | Aug 13, 2019 09:32PM ET
Cost of living for Americans rose last month as core prices strengthened. An uptick in gas prices and higher rent pushed up U.S. inflation, taking a bite out of household income and putting consumers under pressure.
In such an inflationary environment, investors should buy real estate and gold which increase in value at a rate in excess of the rate of inflation.
Core Inflation Marks Strongest 2-Month Stretch Since 2006
Inflation picked up in July, with the consumer price index (CPI) increasing 0.3% last month from June, on par with analysts’ expectations. Over the past 12 months, the cost of living increased to 1.8% from 1.6%, the Labor Department said on Aug 13. Another closely watched measure of prices that excludes volatile food and energy costs, so-called core consumer price index ticked up 0.3% for a second successive month, marking the strongest two-month gain in more than 10 years. Needless to say, the core rate is considered a better source of underlying inflationary trends.
Recent inflation data shows that prices of essential goods have started to strengthen after sluggish price gains at the beginning of this year. What’s more, price gains were broad-based last month mostly driven by energy. Price of gasoline in particular went up last month, thanks to the summer driving season. Prices of services including airfares, used vehicles, household furnishing, rent and medical care also went up. Computer prices, in fact, jumped 2.8%, which is the largest monthly increase since the government started tracking them in 2005.
Tariffs imposed by the Trump administration on an array of imported goods in recent times also pushed core prices higher. Michael Feroli, chief U.S. economist at JPMorgan Chase (NYSE:JPM), noted that “import-dependent categories like information-technology commodities and household furnishings and supplies” saw price increases due to tariffs.
How to Profit From Inflation?
Real estate is an obvious choice because a rise in prices increases the resale value of the property over time. Further, as the value of the property rises with inflation, the amount tenants pay in rent can be increased over time. This is how income generated from a real estate property can keep pace with the general rise in prices across the economy. A real estate property is purchased with the intention of earning a return on investment, either through rental income or through future resale of the property.
When inflation is high, the value of paper currency tanks in terms of goods and services it can buy. But rising inflation is good for gold prices, as gold doesn’t lose value like currency during times of higher inflation. In fact, as inflation increases, demand for gold moves north. Silver and other metals also tend to gain value during inflationary times. However, gold is generally the headline-grabbing investment.
5 Top Picks
As inflation heats up, investing in the aforesaid areas will be judicious. Real estate can be purchased indirectly through investment in real estate investment trust (REIT), while gold can be purchased by investing in stocks of a company involved in the gold mining business.
We have, thus, selected five stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy) and belong to the real estate and gold space. In fact, the Zacks Investment Research
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