How ETFs Are Reacting To March Inflation

Energy and consumer discretionary are all jumping amid the highest inflation since 1981.

March produced another month of decades-high inflation growth, but ETFs are responding positively to a lower-than-expected core CPI figure that may herald peak inflation. 

Inflation for all items rose 1.2% in March alone, marking an 8.5% year-over-year increase that was slightly above expectations. The core CPI figure measuring inflation outside of food and energy came in at 0.3% for March, beating the consensus estimate of 0.5%. 

Energy prices jumped 11% in March as the full effects of Russia’s invasion of Ukraine and subsequent oil import ban into the U.S. took effect, sending the Energy Select Sector SPDR Fund (XLE) up 3.21% as of 11 a.m. ET Tuesday to lead the sectors. 

The Consumer Discretionary Select Sector SPDR Fund (XLY) surged 1.46%, as used car and truck prices declined 3.8% on the month after more than doubling in the past 12 months. 

Investors seem to be betting that the lower core CPI figure is a signal that inflation, while still high, is likely to not go much higher and will reduce the pressure to tighten monetary policy. 

“If [oil] prices can stabilize around the $100 level, the peak for inflation could be in place, which could lessen the risk that the Fed might overly tighten monetary policy in summer and send the economy into a recession,” said Edward Moya, senior market analyst at Oanda. 

The Consumer Staples Select Sector SPDR Fund (XLP) gained just 0.2% on the day despite a 1.3% increase in month-over-month food costs, but the Teucrium Wheat Fund (WEAT) and the Teucrium Corn Fund (CORN) advanced 1.8% and 1.74%, respectively. Flour prices increased 2.6% month-over-month, in part because Russia and Ukraine combined supply a third of the world’s wheat exports. 
 

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