The CPI Is Out: 6 ETFs for Deflation | ETF Trends

Recent data on the state of our economy doesn’t look all that cheery. Despite copious aid provided by the Fed, inflation has not spiked. It wouldn’t hurt to start considering ways to count deflation’s negative effects by using exchange traded funds (ETFs).

The core Consumer Price Index (CPI), excluding food and energy, only inched 0.6% in October year-over-year, the smallest 12-month increase since the index’s inception in 1957, reports Agustino Fontevecchia for Forbes. At best, we might be seeing stagflation – a period of no growth. Worst-case, though, these numbers could be a deflation harbinger. [ETF Strategies to Cope With Deflation.]

Clothing and shelter experienced a 1.2% and 0.3%, respectively, drop year-over-year. Core CPI, was flat as compared to September, with prices on used cars and trucks falling 0.9%, clothing dropped 0.3% and tobacco was down 0.3%. Energy and food prices helped push the index up 0.2% from September and up 1.2% year-over-year. [ETFs Could Be Facing Deflation; How to Cope.]

Deflation is ugly: prices drop, lower prices reduce business profits, managers cut back on employees, consumers buy less and lower demand brings in another round of lower prices. Exacerbating the situation, frugal consumers often wait for prices to decline even more.

There are some ways to combat this:

Cash. The greatest asset to own during a deflationary period would be cash, because your purchasing power vastly increases during deflation.