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Inflation has finally started showing signs of slowing, prompting the Fed to leave interest rates unchanged in its June meeting. This comes as retail sales unexpectedly rose for the second straight month in May, hinting at a rebound.
The latest figures definitely sound impressive, hinting at an economic recovery, but volatility persists given that the crisis is far from over. In this situation, it would be prudent to invest in consumer staple stocks.
Crisis Far From Over
The Fed kept its interest rate unaltered in June after 10 straight hikes over the past year. Fed Chair Jerome Powell said that the decision came as inflation has started showing signs of easing lately.
The Consumer Price Index (CPI) rose 4% in May, down from April’s high of 4.9% and lower than the consensus estimates of 4.1%, the Bureau of Labor Statistics reported on Jun 14.
With this, retail inflation dropped to its lowest level since March 2021. This sharp decline in retail inflation was primarily driven by a drop in gasoline and grocery prices.
Also, core CPI, which excludes the volatile food and energy prices, fell to 5.3% on a year-over-year basis in May from April's jump of 5.5%, reflecting the smallest increase since the autumn of 2021.
However, inflation is still a lot higher than the Fed’s target rate of 2%. Although the Fed didn’t hike interest rates in June, it said that the U.S. labor market and economy have shown greater resilience than expected, making the fight to tame inflation difficult.
The central bank also said that this resilience is expected to continue as the labor market is still holding strong. The Fed thus cautioned that it might need to raise interest rates by another 50 basis points by the end of the year.
Investing in defensive sector stocks, such as consumer staples, can indeed be a prudent approach during the prevailing uncertainty.
The consumer staples sector is known for its stability and resilience, as consumer demand for essential goods tends to remain consistent regardless of economic fluctuations. These companies provide products that are considered everyday necessities, making the sector defensive in nature.
Our Choices
The non-cyclical nature of these stocks protects them from market's vagaries. Moreover, they pay dividends, which is a testament to their robust financial health, consistent earnings generation and ability to withstand market fluctuations.
Conagra Brands, Inc. CAG is one of the leading branded food companies in North America. CAG offers premium edible products, with a refined focus on innovation. Conagra Brands maintains a highly dynamic product portfolio and incorporates alterations within it as per the preference pattern of the end-users.