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Even after almost year-long rate hikes, inflation is hot across the globe. The Russia-Ukraine war, the supply-chain woes resulting from the pandemic and the resultant rally in commodity prices have amplified inflation.
Despite global central banks’ persistent initiatives (i.e., rate hikes) of calming the price levels, inflation continues to remain sturdy. Let’s have a look at the inflation figure.
Inside Inflation Headlines
Though the Fed stayed put in June, Norway, Turkey, U.K and Switzerland and the ECB hiked rates in mid-June to counter inflation. And why not?
The consumer price inflation in the Euro Area was recorded 6.1% in May 2023, much higher than the target of 2% but the lowest since February 2022. Norway had an inflation rate in May of 6.7%. That's far above the central bank's target of 2%. Consumer price inflation across the UK was unchanged at 8.7% in the year to May against expectations for a slight decline.
The annual inflation rate in Turkey dropped for a seventh successive month to 39.6% in May 2023, the lowest since December 2021, from 43.7% in April. Still, Turkey doubled rates from 8.5% to 15% in to order to improve the economy’s inflation picture. The rate hike was Turkey’s first since March 2021. The U.S. central bank Fed also indicated that more hikes are on the way this year.
Against this backdrop, it makes sense to bet on the inflation-efficient investing areas. Below we highlight a few such areas.
ETF Areas in Focus
Consumer Staples
Consumer staples are goods (such as food, beverages, and household items) that people use irrespective of the economic conditions. Even in inflationary periods, demand for these products remains relatively stable. As companies in this sector can pass on the increased costs to consumers to keep up with inflation, it is easy for them to maintain profit margins. iShares Global Consumer Staples ETF (KXI - Free Report) is play in this context.
Materials
The Materials sector will likely ride higher on higher demand for materials and will likely continue its trend as the economy gains steam. The sector has been underinvested for long. The valuation of the sector is still decent. Supply chain woes and the resultant high inflation will keep the prices of materials higher. Investors can take a look at iShares Global Materials ETF (MXI - Free Report) .
Energy
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds. The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices boosted inflation globally. Investors can track iShares Global Energy ETF (IXC - Free Report) .
Commodities
Commodities, including metals, agricultural products, and others, tend to see their prices rise during inflation. Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio.
Inflation normally results in the depreciation of a country's currency. Commodities, however, often maintain their value even when the currency depreciates. Certain commodities like soft commodities and energy are needed for the survival. Invesco DB Commodity Index Tracking Fund (DBC - Free Report) and iShares S&P GSCI Commodity-Indexed Trust (GSG - Free Report) are examples of some broad commodities ETFs.
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Sector ETFs to Play Persistent Global Inflation
Even after almost year-long rate hikes, inflation is hot across the globe. The Russia-Ukraine war, the supply-chain woes resulting from the pandemic and the resultant rally in commodity prices have amplified inflation.
Despite global central banks’ persistent initiatives (i.e., rate hikes) of calming the price levels, inflation continues to remain sturdy. Let’s have a look at the inflation figure.
Inside Inflation Headlines
Though the Fed stayed put in June, Norway, Turkey, U.K and Switzerland and the ECB hiked rates in mid-June to counter inflation. And why not?
The consumer price inflation in the Euro Area was recorded 6.1% in May 2023, much higher than the target of 2% but the lowest since February 2022. Norway had an inflation rate in May of 6.7%. That's far above the central bank's target of 2%. Consumer price inflation across the UK was unchanged at 8.7% in the year to May against expectations for a slight decline.
The annual inflation rate in Turkey dropped for a seventh successive month to 39.6% in May 2023, the lowest since December 2021, from 43.7% in April. Still, Turkey doubled rates from 8.5% to 15% in to order to improve the economy’s inflation picture. The rate hike was Turkey’s first since March 2021. The U.S. central bank Fed also indicated that more hikes are on the way this year.
Against this backdrop, it makes sense to bet on the inflation-efficient investing areas. Below we highlight a few such areas.
ETF Areas in Focus
Consumer Staples
Consumer staples are goods (such as food, beverages, and household items) that people use irrespective of the economic conditions. Even in inflationary periods, demand for these products remains relatively stable. As companies in this sector can pass on the increased costs to consumers to keep up with inflation, it is easy for them to maintain profit margins. iShares Global Consumer Staples ETF (KXI - Free Report) is play in this context.
Materials
The Materials sector will likely ride higher on higher demand for materials and will likely continue its trend as the economy gains steam. The sector has been underinvested for long. The valuation of the sector is still decent. Supply chain woes and the resultant high inflation will keep the prices of materials higher. Investors can take a look at iShares Global Materials ETF (MXI - Free Report) .
Energy
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds. The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices boosted inflation globally. Investors can track iShares Global Energy ETF (IXC - Free Report) .
Commodities
Commodities, including metals, agricultural products, and others, tend to see their prices rise during inflation. Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio.
Inflation normally results in the depreciation of a country's currency. Commodities, however, often maintain their value even when the currency depreciates. Certain commodities like soft commodities and energy are needed for the survival. Invesco DB Commodity Index Tracking Fund (DBC - Free Report) and iShares S&P GSCI Commodity-Indexed Trust (GSG - Free Report) are examples of some broad commodities ETFs.