NASDAQ: Core Inflation Picks Up to a 10-Year High

Article By Tirthankar Chakraborty on NASDAQ

Cost of living for Americans rose in July at the fastest pace in a decade, indicating a strong U.S. economy and tighter labor market. Shelter costs gave a big boost to results, implying that the Fed's gradual interest rate hike will be on track.

Banks and insurance companies stand to gain from steady interest rate hikes. In the present inflationary environment, investors can also buy real estate and gold which increase in value at a rate higher than the rate of inflation.

Core Inflation Reading Highest Since 2008

U.S. consumer prices rose in July, reflecting escalating inflationary pressure, according to the US Bureau of Labor Statistics. While shelter costs rose 0.3% in July, energy costs fell 0.5%. In the 12-month period through July, the Consumer Price index advanced 2.9%.

The annual increase in the so-called core CPI came in at 2.4%. This turned out to be the fastest annual jump in core inflation since September 2008, easily topping market expectations of 2.3%.

This rise in inflation has also eaten into household income. Inflation-adjusted hourly wage remained unchanged in July compared to previous month and dropped 0.2% from a year earlier.

Who Profits From Rise in Inflation?

Real estate is an obvious choice because a rise in prices increases the resale value of the property over time.

When inflation is high, the value of paper currency tanks in terms of goods and services it can buy. But rising inflation is good for gold prices, as the metal doesn't lose value like currency in times of higher inflation.

In fact, as inflation increases, demand for gold moves north. Silver and other metals also tend to rise in value during inflationary times. However, gold is generally the headline-grabbing investment.