Inflation Zooms To 13-Year High: 5 Solid TIPS ETF Picks

Board, Blackboard, Economy, Inflation, Money

Inflationary pressure in the United States is heating up with consumer price inflation increasing at the fastest pace in more than a decade. This is especially true as the consumer price index (CPI) jumped 4.2% in April from the year-ago level to the highest level in 13-years and rose 0.8% from the prior month, as per data from the Bureau of Labor Statistics.

The so-called core inflation, which strips out volatile components such as food and energy prices, rose 0.9% in April — the largest monthly increase since 1982 — and 3% from the year-ago month (read: Inflation Is Picking Up: 5 ETFs to Make the Most of It).

Behind the Numbers

The surge was driven by higher prices of commodities as well as higher food to transport costs. Prices of used vehicles saw the biggest jump of 10% — the largest monthly increase since these records began in 1953. New vehicles price rose 0.5% while transportation services costs increased 2.9%. Commodity prices, excluding food and energy, rose 2% as cost of raw materials increased to manufacturers while food price grew 0.4%. Meanwhile, shortage of raw materials has boosted prices of everything from lumber to toilet paper.

The trend is likely to continue in the coming months given the huge infrastructure and stimulus packages, widening reach of vaccinations and a healing job market that have led to speedy recovery. In fact, the economy grew 6.4% annually in the first quarter, representing the second-strongest increase since 2003 and is expected to top 7% this year, which would be the fastest since 1984, per several economists. This would follow the worst performance in 74 years when the economy contracted 3.5% in 2020.

According to the IMF, the United States is expected to become the engine of the global economy this year with the strongest growth of 6.4% in decades. The red-hot economy will continue to push inflation higher (read: 5 Top-Ranked ETFs to Ride on a Booming Economy).

Notably, the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) reached the highest since 2006 at 2.71%, ahead of the Fed's 2% inflation target. The five-year breakeven inflation rate — which measures expectations of inflation five years out — reached its highest since April 2011 on May 10 while the 10-year breakeven inflation rate — a measure of expectations of inflation in 10 years time — rose to its highest since March 2013.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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