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| By Sean Brodrick |
The market is very happy that the U.S. and Iran seem to be making progress on a peace deal.
I hope they’re right. Because we’ve got bigger problems.
What’s bigger than war? Well, for the American consumer, it’s inflation.
Last week, I gave a presentation to my Resource Trader subscribers on the threat of inflation and five ways to beat it.
I want to share a little of that exclusive presentation with you now and give you your own way to beat inflation that is heating up.
Point #1: The Government’s Own Inflation Warning
There are four important indicators showing red-hot inflation:
- Consumer Price Index, or CPI Inflation: 4.2%, the highest since April 2023.
- Personal Consumption Expenditures, or PCE Inflation: 3.8%, the highest since May 2023.
- Core PCE (the Fed’s primary gauge): 3.3%, the highest since November 2023. We’ll get the next round of PCE on June 25.
- Producer Price Index, or PPI Inflation: This just came out last week at 6.5%. That’s the highest since November 2022.
In sum, not only is inflation way above the Fed’s 2% target, but it’s hotter than it has been in years.
Point #2: Rise in Headline Inflation
Next, I talked about this chart, showing the CPI headline inflation. The trend is clear …
Behind the headlines, gasoline prices soared 40.5%, after a 28.4% gain.
Fuel oil also increased 58.9% (vs 54.3%).
In fact, the Bureau of Labor Statistics says that energy accounted for over 60% of the May all‑items CPI increase as the energy index rose 3.9% in the month, continuing a sharp run that began in March.
Inflation also accelerated for shelter (3.4% vs 3.3%) and food (3.1% vs 2.3%). Yikes!
Point #3: PPI Is a Harbinger of Worse to Come
I also looked at PPI, which is worse than CPI. This is bad news …
This is bad because price spikes in raw materials and wholesale goods feed through to consumer inflation, typically hitting store shelves within three to four months.
So, it’s likely that consumers will face even higher prices down the road.
Point #4. Workers Suffer, the Fed Can’t Help
Because inflation is accelerating so quickly, real wage growth — that is, workers’ wages minus the effect of inflation — is now negative.
In fact, over the latest 12‑month period through May, inflation has outpaced wage growth for the year.
Even if workers are seeing nominal raises, their actual purchasing power is being eroded by the rising cost of living.
That explains why consumer sentiment has plunged to historic lows despite low unemployment numbers.
Importantly, the Fed is boxed in.
Raising rates won’t help if energy prices are the big driver. But the Fed can’t cut with inflation so strong.
Point #5: Forces Lining Up for Higher Inflation
Over the past year, energy prices have risen by 23.5% and food prices by 3.1%.
Hopes for hitting the Fed’s 2% inflation target are growing thinner by the day.
And speaking of energy prices, even if the Iran conflict is settled, the cumulative effects of the Strait of Hormuz blockade will take months to work through.
At the same time, President Trump’s tariffs are another inflationary force. They aren’t going away.
Tariff pass-through has been modest so far. Expect that to pick up.
How to Beat Inflation
I told subscribers that they need to buy stocks that A) have pricing power, and can pass through inflationary costs, and B) are growing faster than inflation.
In Resource Trader, we’ve been rotating into these stocks all year. I’m talking about HALO stocks — Heavy Assets, Low Obsolescence.
I’ve discussed that idea here before.
Those stocks that have a ‘moat’ and can raise prices with inflation.
An easy way to beat inflation is to invest in the Horizon Kinetics Inflation Beneficiaries ETF (INFL).
It holds a basket of foreign and domestic stocks expected to benefit, directly or indirectly, from rising prices of hard assets — commodities, land, royalties, etc.
The portfolio doesn’t track a benchmark. It holds 20 to 60 names globally, with a heavy tilt toward energy, real‑asset royalties and resource‑linked financials and infrastructure.
Its top three holdings are Wheaton Precious Metals (WPM), LandBridge (LB) and PrairieSky Royalty (PREKF).
The fund has a tiny dividend yield, an expense ratio of 0.85% and a Weiss Rating of “C.”
Here’s a chart …
You can see that INFL has been on a war-fueled roller coaster ride. But after bottoming last week, it is blasting off again.
The market does not believe the inflation story is over, not by a long shot.
I believe INFL will reach 95 over the next year.
It needs to break through recent overhead resistance, but that’s nearly an 84% increase.
So, if you’re as concerned about inflation as I am and want to start preparing your portfolio, consider adding INFL to your portfolio.
All the best,
Sean
P.S. There’s another tool I recommend for this inflationary environment. But it comes with a paradox.
