Is Easing February Inflation Actually a Relief? ETFs in Focus

Inflation eased in February, marking the first decline in five months. The Consumer Price Index (CPI) rose 2.8% year-over-year, down from January’s 3% rate, according to the Bureau of Labor Statistics, as quoted on CNN.

On a monthly basis, prices increased by 0.2%, slowing from January’s 0.5% rise. Economists’ expectation was a 0.3% monthly increase and 2.9% annual inflation, citing falling gas prices and lower housing-related costs.

The core CPI—which excludes volatile food and energy prices—rose 0.2% month-over-month, down from January’s 0.4% increase. The annual core inflation rate also slowed to 3.1% from 3.2%, marking its lowest level in nearly four years. Following the report’s release, U.S. stocks rallied, reversing a three-week decline.

Tariffs May Drive Prices Higher

Economists warn that February’s inflation progress may be momentary. Sung Won Sohn, an economist at Loyola Marymount University, noted that new tariffs could soon boost inflation, quoted on CNN.

A 10% tariff on Chinese goods took effect in February, with some retailers likely raising prices preemptively. Additionally, tariffs on steel, aluminum, and imports from Canada and Mexico could increase vehicle prices in the coming months, per Sohn.

Food prices are also at risk, as supply constraints and tariffs may push up costs for eggs, baked goods and other essential groceries. Wells Fargo economists predict that CPI could rise to 3.2% by Q3 of 2025, nearly a percentage point higher than it would be without these tariff policies, as quoted on CNN.

ETFs in Focus

Against this backdrop, below we highlight a few exchange-traded funds (ETFs) that could be gainful ahead.

Horizon Kinetics Inflation Beneficiaries ETF INFL

The tariff impact may drive March inflation. Investors can prepare for this with inflation-beating products like INFL.  The Horizon Kinetics Inflation Beneficiaries ETF is an actively managed ETF that seeks long-term growth of capital in real terms.

SPDR Gold Trust GLD

Gold market is in the sweet spot currently. Gold is often viewed as a safe-haven as well as inflation-beating asset. Hence, the current market backdrop serves well for gold investing. The largest gold bullion ETF GLD is up 10.2% this year.

iShares Select Dividend ETF DVY

Dividend-paying stocks provide a steady income stream and help mitigate potential losses during weaker market periods. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Higher current income could be beneficial during a high-inflation period. The fund yields 3.66% annually (read: 5 Defensive ETF Strategies to Follow Amid Market Meltdown).

SPDR Portfolio S&P 500 Value ETF SPYV  

Investors can bet on large-cap value ETFs. After all, value investing requires buying securities that appear underpriced. Also, value stocks tend to perform better than growth stocks in a rising rate environment, which is a normal consequence of a high-inflation period. The Fed will also hesitate to cut rates quickly if inflation rises.

SPDR Bloomberg 1-3 Month T-Bill ETF BIL

Short-term Treasury ETFs generally track a collection of short-term Treasury securities, focusing on bonds with shorter durations. These ETFs typically hold Treasuries that mature within a few months to a few years. During periods of high or rising inflation, they provide a balance of attractive yields and lower risk compared to long-term Treasury ETFs. The ETF BIL yields 4.86% annually (read: Why Are Investors Flocking to Money Market Funds?).

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This article originally published on Zacks Investment Research (zacks.com).

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