TIPS ETFs To Buy On Growing Inflation

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Inflation has been picking up steadily in the United States as evident from the latest data provided by the Labor Department, which showed that inflation accelerated at the fastest pace in five months. The consumer price index (CPI) rose 0.3% last month, marking the fastest pace of increase in five months, following the 0.2% rise in December. This brings the annual inflation to 1.4%.

The trend is likely to continue in the coming months given excessive cheap money flows, widening reach of vaccinations and a healing job market that have spurred the expectation for speedy recovery, which in turn will lift inflation. Economists in Wall Street Journal survey reveals that the U.S. economy will grow 4.3% this year, as the country exits the worst of the coronavirus pandemic. This marks a sharp increase from the 3.7% growth forecast for 2021 in last month’s survey. Goldman Sachs also raised its forecast for 2021 US GDP growth to 6.8% from 6.6%.

Additionally, markets across the world — from U.S. and European bonds to stocks and oil — are sending a clear signal that inflation is finally coming back. Per Bloomberg, the market-implied pace of U.S. consumer-price increases briefly accelerated to the fastest since 2014, and 30-year Treasury yields temporarily topped 2% for the first time in a year as rising expectations for an economic recovery fueled an oil rally. In Europe, a swap-market gauge of future inflation is close to its highest level since 2019.

The bond-market inflation gauge has climbed in nine of the past 10 months from the low of less than 0.5% seen last March, when the pandemic-related turmoil rocked markets. Further, oil price surged to a one-year high amid tightening global supply and an improving outlook for demand that has given a further boost to inflation expectations.

Meanwhile, the 10-year U.S. breakeven inflation rate, a proxy for annual inflation expectations, has strongly rebounded from the pandemic lows reached in March 2020 to 2.22%. The 5-year breakeven inflation rate, a Treasury market metric of inflation expectations, also surged to 2.3% — the highest level since April 2013. This means market experts expect inflation to average 2.3% over the next five years.

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Disclosure: 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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