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Inflation Rises the Lowest Since October 2021: ETFs to Tap

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Inflation in the United States jumped at the start of 2023, but the annual increase was the lowest since October 2021, indicating a continued slowdown. This will likely keep the Federal Reserve on a moderate interest rate hike path (read: Fed Hike Slows Down But Set to Remain Steady: ETFs to Gain).

The consumer price index rose 0.5% in January following a 0.1% increase in December. It climbed 6.4% year over year, almost steady with a 6.5% increase in December but down from a peak of 9.1% in June.

This has put focus on ETFs like SPDR Gold Trust ETF (GLD - Free Report) , First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) , iShares U.S. Home Construction ETF (ITB - Free Report) , Technology Select Sector SPDR Fund (XLK - Free Report) , and Invesco S&P 500 Pure Growth ETF (RPG - Free Report) . These funds are likely to benefit from easing inflation and a less aggressive Fed.

Behind the Inflation Numbers

Most of the monthly rise in inflation came from the rising shelter and gasoline prices. Shelter costs, accounting for more than one-third of the index, rose 0.7% over the month and 7.9% over the last year. Meanwhile, gasoline prices jumped 2.4% after declining for two straight months. Americans also paid more for natural gas and electricity.

Food prices increased 0.5% over the past month after advancing 0.4% in December. The cost of food consumed at home climbed 0.4%, driven by rising prices for meat, fish and eggs. Prices for cereals, bakery goods and nonalcoholic beverages also edged up. However, prices for used cars and trucks, medical care and airline fares decreased over the month.

The so-called core inflation, which strips out volatile components such as food and energy prices, increased 0.4% after rising 0.4% in December. On an annual basis, inflation climbed 5.6%, the lowest since December 2021, after rising 5.7% in December.

Though the rising costs for essential items remain a burden for U.S. consumers, the overall inflation picture has improved since the peak of the current cycle last year. President Joe Biden said in a statement that the CPI report "reinforces that we have made historic progress and are on the right track, and now we need to finish the job." “Inflation in America is continuing to come down, which is good news for families and businesses across the country.”

ETFs in Focus

SPDR Gold Trust ETF (GLD - Free Report)

The slowdown in inflation growth will keep the Fed on a slow interest-rate increase path. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. A slowdown in the pace of rate hikes will provide some lift to the yellow metal (read: How to Bet on Gold Price Rally With ETFs).

SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $55 billion and a heavy volume of about 5 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report)

This ETF will continue to get a boost from rising food prices. First Trust Nasdaq Food & Beverage ETF offers exposure to U.S. companies within the food and beverage industry. It tracks the Nasdaq US Smart Food & Beverage Index, holding 30 securities in its basket, with each accounting for less than 8% share.

First Trust Nasdaq Food & Beverage ETF has AUM of $979.1 million and charges 60 bps in annual fees. It sees an average daily volume of about 177,000 shares and has a Zacks ETF Rank #2 (Buy).

iShares U.S. Home Construction ETF (ITB - Free Report)

Homebuilder ETF will get a dual advantage from falling inflation and a higher shelter cost. Falling inflation will keep the mortgage rates low, making home ownership less expensive for first-time buyers, while higher shelter costs will provide homebuilders an edge to negotiate well.

iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $1.5 billion, it holds a basket of 48 stocks with a heavy concentration on the top two firms. iShares U.S. Home Construction ETF charges 39 bps of annual fees and trades in a heavy volume of around 2 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Here's Why Housing ETFs Are Up in 2023 Despite Soft Sales).

Technology Select Sector SPDR Fund (XLK - Free Report)

The technology sector, which has been battered over the past year due to rising rates, will likely get some relief from the slower pace of rate hikes. As such, XLK seems a prudent choice. Technology Select Sector SPDR Fund targets the broad technology sector and follows the Technology Select Sector Index. It holds about 76 securities in its basket and has key holdings in software, technology hardware, storage & peripherals, semiconductors & semiconductor equipment and IT services.

Technology Select Sector SPDR Fund is the most popular and heavily traded ETF, with AUM of $41.7 billion and an average daily volume of 6.6 million shares. The fund charges 10 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Best Tech ETFs In Nasdaq's Worst Week Since December).

Invesco S&P 500 Pure Growth ETF (RPG - Free Report)

Growth investing will regain momentum, given the renewed appeal for riskier assets. Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 74 stocks in its basket, with none making up for less than 3% of assets. Energy dominates the portfolio with 29.4% of its assets, while healthcare and information technology round off the next two spots with double-digit exposure each.

Invesco S&P 500 Pure Growth ETF has amassed $2.2 billion in its asset base and trades in a good average volume of around 98,000 shares a day. The product charges 35 bps in fees a year from investors and has a Zacks ETF Rank #2 with a Medium risk outlook.

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