Inflation's Back On The Radar—These ETFs Could Be Your Shield

The slight increase in U.S. inflation in August has brought to the spotlight ETFs that are capable of balancing strength with growth. Some of the funds that could bode well for investors if inflation continues to tick up are:

• First Trust Dow 30 Equal Weight ETF EDOW: Aims to minimize concentration risk by equally weighting Dow components.
• iShares Core S&P Total U.S. Stock Market ETF ITOT: Offers broad-based exposure to the entire U.S. equity market.
• iShares Core S&P 500 ETF IVV: An inexpensive, diversified fund that follows the S&P 500.
• iShares S&P 100 ETF OEF: Concentrates on the biggest, most liquid U.S. stocks.
• Invesco S&P 500 Quality ETF SPHQ: Screens for strong-performing companies with stable balance sheets and consistent earnings.

These ETFs are unique in today’s climate as they offer a mix of growth and stability, qualities that could be beneficial if inflation continues to stay high and interest rate policy becomes conservative.

Also Read: Goldman Sachs Says August CPI Inflation Is Heating Up: Tariffs, Travel, Used Cars Behind The Surge

Inflation Trends

U.S. Consumer Price Index (CPI) increased 2.9% from a year ago in August, following 2.7% in June and July. On a monthly basis, CPI went up 0.4%, which was higher than expected at 0.3%. Gasoline and food price increases were the main drivers, with energy prices increasing for the first time in seven months.

Core inflation, which does not include food and energy, remained unchanged from July at 3.1% year-over-year. The 0.3% monthly increase was in line with projections.

Implications For Monetary Policy

The increase in headline inflation makes the Federal Reserve’s policy picture more challenging. Meanwhile, a jump in weekly jobless claims signals a weakening labor market. This conflicting data lowers the chances of an aggressive rate reduction in September, and markets are expecting a 25-basis-point cut rather than a more substantial move, according to the CME FedWatch tool.

In such an environment, ETFs that offer broad exposure coupled with quality screens might be more useful to investors than narrow theme or strongly cyclical plays. Equal-weighted and quality-oriented approaches, especially, might reduce concentration risk while setting up portfolios for stable returns if inflation continues and rate cuts move more slowly than anticipated.

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