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U.S. consumer prices increased more than expected in September, indicating persistent and elevated inflation, which is squeezing household spending and pushing the Federal Reserve toward another aggressive rate hike. The core consumer price index, which strips out volatile components, such as food and energy prices, climbed 6.6% year over year, marking the biggest annual increase in 40 years.

The data has put ETFs like First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report), Vanguard Real Estate ETF (VNQ - Free Report), SPDR S&P Health Care Services ETF (XHS - Free Report), and SPDR S&P Transportation ETF (XTN - Free Report) in focus.

Behind the Inflation Numbers

The consumer price index rose 0.4% in September after rising 0.1% in August, twice the 0.2% projected by analysts even as the annual rate slowed slightly to 8.2% from 8.3%. The hot data came amid the soaring prices for shelter, food, and medical care.

Shelter costs, which make up about a third of the overall CPI index, rose 0.7% from the last month and 6.6% from the year-ago period. Food prices increased 0.8%, with the cost of food at home advancing 0.7% amid rises in all six major grocery store food groups. Healthcare costs edged up 0.8% as consumers paid more for doctor visits.

Transportation services also showed a big bump, increasing 1.9% in the month and 14.6% year over year, while rents shot up 0.8%, the largest increase since June 1990. Air fares also rose 0.8% from the last month and 42.9% from a year ago after consecutive monthly declines.

The data bolstered the expectations that the Federal Reserve will come up with the fourth 75 bps interest rate hike next month.

ETFs in Focus

First Trust Nasdaq Food & Beverage ETF (FTXG)

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 8.3% share.

First Trust Nasdaq Food & Beverage ETF has an AUM of $850.7 million and charges 60 bps of annual fees. It sees an average daily volume of about 130,000 shares and has a Zacks ETF Rank #3 (Hold).

Vanguard Real Estate ETF (VNQ)

Vanguard Real Estate ETF follows the MSCI US Investable Market Real Estate 25/50 Index and holds 167 stocks in its basket. Specialized REITs take the largest share at 38.7%, while residential REITs, industrial REITs, and retail REITs round off the next three with double-digit exposure each. The expense ratio comes in at 0.12%.

Vanguard Real Estate ETF is the most popular and liquid ETF, with an AUM of $31.6 billion and an average daily volume of 5 million shares a day. VNQ has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

SPDR S&P Health Care Services ETF (XHS)

SPDR S&P Health Care Services ETF offers exposure to healthcare services like healthcare distributors, healthcare facilities, healthcare services, and managed healthcare. It uses an equal-weight methodology for each security by tracking the S&P Health Care Services Select Industry Index and holds 69 stocks in its basket.

SPDR S&P Health Care Services ETF has amassed $125.5 million in its asset base and trades in a paltry volume of around 14,000 shares a day. The expense ratio comes in at 0.35%. XHS has a Zacks ETF Rank #3 with a Medium risk outlook.

SPDR S&P Transportation ETF (XTN)

SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index, holding 49 stocks in its basket, with none of the firms accounting for less than 3%. About 40% of the portfolio is dominated by trucking, while airlines, and air freight & logistics take 25.8% and 18.6% share, respectively.

With AUM of $405.9 million, SPDR S&P Transportation ETF charges 35 bps in fees per year from its investors and trades in a volume of around 41,000 shares a day.

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