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U.S. Consumer Inflation Moderate: ETFs to Win

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U.S. consumer prices witnessed a solid increase in February, resulting in the largest annual gain in a year, but the underlying inflation remained lukewarm amid still-sloth demand for services like airline travel.  Consumer prices in the United States increased 0.4% sequentially in February, slightly higher than 0.3% in January but matching market forecasts. The increase in the gasoline index (+6.4%) made up more than half of CPI gain. That was on the 7.4% gain in January.

Notably, the electricity (+0.7%) and natural gas (+1.6%) indexes also increased and the energy index rose 3.9%. The food index nudged up 0.2%. Increases were also noticed in cost of shelter (+0.2%), recreation (+0.6%), medical care (+0.5%), and motor vehicle insurance (+0.7%). However, airline fares (-5.1%), used cars and trucks (-0.9%) and apparel (-0.7%) witnessed a decline, per tradingeconomics.

Barring food and energy, core consumer prices inched up 0.1%, less than forecast of 0.2%. On an annual basis, inflation rate in the United States increased to 1.7% in February from 1.4% in January, in line with market forecasts.  The core CPI inched up 1.3% on a year-on-year basis, receding from January’s 1.4% gain.

Against this backdrop, we highlight a few winning and losing ETFs that could be in focus right now.

ETFs to Win

Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report)

The rise in cost of shelter is a plus for the real estate stocks and ETFs. The moderate inflation trend also points to the fact that rates are going to rise in the coming days at a moderate pace. On Mar 10, 2021, benchmark U.S. treasury yield was 1.53% versus 1.55% recorded a day before. Modest gains in rates also back a likely real estate rally.

Invesco Dynamic Leisure and Entertainment ETF (PEJ - Free Report)

Growing vaccine distribution and Biden’s stimulus means lesser life risks and greater financial stability. Rise in recreation costs is a plus for the fund. The underlying Dynamic Leisure & Entertainment Intellidex Index comprises stocks of U.S. leisure and entertainment companies (read: 4 Sector ETFs to Sizzle on Solid February Jobs Data).

Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)

As the food index too rose in the month, the fund can be seen a decent bet at the current level. The underlying Dynamic Food & Beverage Intellidex Index comprises stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies.

SPDR Gold Shares (GLD - Free Report)

Subdued core inflation means gradual rise in rates ahead. This may result in a weaker U.S. dollar which could help gold gain in prices. The ETF GLD is designed to track the spot price of gold bullion.

iShares Core S&P Total U.S. Stock Market ETF (ITOT - Free Report)

A moderately inflationary environment should augur well for the broader stock market. Investors can thus bet on ITOT. The underlying S&P Total Market Index tracks the broad equity market, including large, mid, small and micro-cap stocks.

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