5 ETFs That Profit from Inflation

Focus: ETFS

Fears about upcoming inflation continue to be widespread, and these five ETFs are designed to profit even if inflation does prevail in the months ahead.

As the US government has resorted to excessive spending measures to keep the economy from completely crumbling, many investors believe that inflation is inevitable and likely to prevail in the near-term future.

Current economic data suggest that inflation is relatively tame, but prices are on the rise. In April, the Consumer Price Index (CPI) rose by 3.2% from a year earlier, marking the fourth straight month of rising prices.

Furthermore, these increases in prices had already emerged in the retail sector, as rising prices of cotton, wheat, sugar, crude oil, and other raw materials have forced companies like Starbucks (SBUX), McDonald's (MCD), and Levi Strauss to raise prices and pass the impact through to the consumer.

Another indicator that inflation is likely to prevail is the recent jump in the breakeven rate of five-year Treasury Inflation Protected Securities (TIPs), which are flirting with three-year highs.

The breakeven rate is the yield difference between TIPs and comparable-maturity Treasuries and a good measure of the outlook for consumer prices over the life of the securities, in this case five years. As this rate increases, the likelihood of rising prices increases.

Lastly, the general perception of inflation expectations appears to be rising at the Federal Reserve. In fact, according to Caroline Salas and Scott Lanman of Bloomberg, expectations for annual consumer price gains have increased by more than 40% since the Fed began its second round of asset purchases in November.

Despite this perception, the Fed continues to implement its stimulus policymaking by keeping short-term interest rates at or near zero, which could also add fuel to the inflationary fire.

At the end of the day, although inflation is not prevailing, signs are starting to emerge.