The U.S. consumer inflation rate took a dip to 4.0% in May 2023, marking the lowest since March 2021 and slightly below market expectations of 4.1%. This decline was primarily driven by a decrease in energy prices, predominantly gasoline and electricity. The core rate, which bars items like food and energy, has slowed to 5.3%, the lowest since November 2021.

Energy costs fell 11.7%, while food inflation slowed to 6.7%. There were also smaller price increases of 4.7% for new vehicles, 3.5% for apparel, 8.0% for shelter, and 10.2% for transportation services. The cost of medical services was down 0.1%. On a sequential basis, consumer prices nudged up 0.1% in May.

For investors, the unfolding inflation scenario presents some opportunities. The cooling of inflation might ease concerns over a rapid sequence of interest rate hikes, which could be beneficial for equity markets. On the other hand, certain sectors, continue to see price increases, indicating potential areas of investment focus.

Against this backdrop, below we highlight a few sector ETFs that should gain in the near term.

Sector ETFs to Gain

Consumer Staples – Consumer Staples Select Sector SPDR ETF (XLP Quick QuoteXLP - Free Report)

The food index increased 0.2% in May, and the food at home index rose 0.1% sequentially (up from a decline of 0.2% last month). Three of the six major grocery store food group indexes increased in May. The food away from home index too rose 0.5%.

Zacks Rank #2 Consumer Staples Select Sector SPDR ETF (XLP Quick QuoteXLP - Free Report) looks to track the Consumer Staples Select Sector Index. Beverages, household products, food & staples retailing and food products are four top industries in the fund.

Real Estate – Kelly Residential & Apartment Real Estate ETF

Weighted shelter makes up 32.77% of CPI, of which 7.8% is rent and 23.68% is private housing, per data from MacroMicro. The shelter index rose 0.6% over the month after gaining 0.4% in April. The index for rent rose 0.5% in May, as did the index for owners' equivalent rentThe index for lodging away from home increased 1.8% in May even after decreasing 3.0% in April.

The ETF RESI should thus win. The underlying Strategic Residential & Apartment Real Estate Sector Index is a rules-based index that consists of U.S. and Canada-listed companies engaged in Apartment Buildings, Single-Family Rental Homes, Student Housing or Manufactured Homes. The fund yields 6.02% annually.

Transportation – SPDR S&P Transportation ETF (XTN Quick QuoteXTN - Free Report)

The transportation index jumped 0.8% sequentially in May after a decline of 0.2% in April. The index gained 10.2% year over year. The airline fares index rose 3.0% in May, after a 2.6% decline in April. SPDR S&P Transportation ETF XTN has a Zacks Rank #2. Trucking takes about 40% of the fund, followed by Airlines and Air Freight & Logistics.

Medical Care Commodities – iShares U.S. Medical Devices ETF (IHI Quick QuoteIHI - Free Report)

The medical care commodities index rose 0.6% sequentially in May after an uptick of 0.5% in April. The index is up 4.4% year over year. The Zacks Rank #2 (Buy) fund Health Care Equipment takes about 80% of the fund.