How Inflation Could Change the Way We Invest With ETFs

May 11th at 2:00pm by Tom Lydon

ETF inflationInflation may not be the most pressing matter of the day, but it is somewhere in the back of our minds and there are some exchange traded funds (ETFs) that could help hedge against it.

Large increases in bank reserve, increasing government debt as a result of stimulus programs and currency devaluation are all hallmarks of countries facing the prospect of inflation, remarks Allan H. Meltzer for The New York Times.

But some economists look to the economy and say that current monetary policies are being implemented to combat deflation, citing the 1% decline in consumer price index as evidence for deflation. This statistic may be misleading. Instead, the GDP deflator, which shows a 2.9% rise for this year’s first quarter, could be a better indicator of inflation.

According to Dominic Konstam for Financial Times, uncontrollable inflation is not inevitable and we are not going to be stuck in a depression and deflation. Konstam thinks we are in for a mildly deflationary middle ground with some nominal growth.

Growth is likely to increase only a little, says Konstam, and real interest rates will remain high. Consumers could start to save more and spend less, which would put pressure on inflation.

If you are worried about what inflation could do to your wealth then you may want to consider looking into some ETFs that help protect against inflation. One that comes to mind is iShares Barclays TIPS Bond (TIP), which is down 0.9% year-to-date.

ETF TIP

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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