Consumer Staple ETFs to Watch Amid Persistent Inflation Concerns

The Consumer Staples sector, which includes companies that produce essential goods like food, beverages, and household products, has historically served as a defensive haven for investors during periods of economic turbulence and high inflation. Since demand for these necessities is generally inelastic, meaning people continue buying them regardless of economic conditions, these companies tend to maintain steady revenues and earnings, providing a buffer against market volatility.

This characteristic makes the sector (and the Exchange-Traded Funds (ETFs) that track it) a traditional area of focus for investors seeking stability during uncertain times like those the U.S. economy is currently facing.

But before suggesting a few consumer staples ETFs that you may want to focus on, let us first understand the current state of the U.S. economy, its impact on consumers, and whether a recovery can be expected anytime soon. This will provide a comprehensive picture and help in making informed decisions.

America: An Environment of Economic Crosswinds

The U.S. economy is currently navigating a complex landscape marked by persistent inflation and a softening job market, with the unemployment rate having edged up to 4.4% in September 2025, marking the highest level since October 2021.

While the Federal Reserve (Fed) has been actively cutting interest rates to support a weakening job market, with the most recent cut finalized just yesterday, these reductions alone are not sufficient to boost the economy.

In fact, some analysts remain worried that a rate cut might have overstimulated demand and pushed up prices, as borrowing becomes cheaper in a low-rate environment. 
Additionally, unfavorable trade policy, in particular the tariffs imposed by the U.S. government this year, continues to be a headwind for the American economy, which has been acknowledged by the Fed Chief as a critical headwind affecting the nation’s inflation rate. 

All these factors have put the U.S. economy at a critical crosswind, as the country’s central bank tries to address both inflation and a slow labor market at the same time. 

Consumer Staples in a Fraught US Economy

Amid this backdrop, consumer sentiment has declined considerably, with growing uneasiness about economic conditions and personal finances. In response to the high prices, households have adopted a pragmatic stance — they are prioritizing spending on core necessities like meat and dairy while pulling back sharply on discretionary categories. 

This widespread "trade-down" behavior, where consumers seek more affordable options, directly affects retailers. As a result, companies like Walmart WMT and Costco COST, with their everyday low-price focus, are resonating with consumers, while those perceived as more premium may be facing pressure.

As 2025 comes to a close, rising economic concerns and constrained budgets have led many U.S. consumers, especially those in low and middle-income brackets, to shift spending from luxury products to core, everyday necessities. 

As per a survey done by McKinsey & Company, a slightly larger share of consumers said they intend to spend more on core categories, including meat, dairy, and shelf-stable groceries, in the fourth quarter compared with the previous quarter, reflecting continued prioritization of necessities amid tighter budgets. 

This puts the spotlight on the defensive nature of the consumer staple sector, which tends to boom during such economic uncertainties.

Consumer Staple ETFs to Watch

Considering the above discussion, it is reasonable to conclude that amid the widespread uncertainty in the U.S. economy, keeping a basket of consumer staple ETFs on their watchlist can give investors a ready tool to shift toward stability if volatility in more cyclical sectors intensifies.

These ETFs, mentioned below, provide portfolio stability, consistent revenues and a stream of dividend income, making them attractive to risk-averse investors seeking to weather the ongoing macroeconomic uncertainty. 

Consumer Staples Select Sector SPDR ETF XLP

This fund, with assets under management (AUM) worth $14.9 billion, offers exposure to 37 companies from consumer staples distribution & retail; household products; food products; beverages; tobacco; and personal care products industries in the United States. Its top three holdings include WMT (11.98%), COST (9.28%) and Procter & Gamble PG (7.71%).

XLP has gained 1.4% year to date. The fund charges 8 basis points (bps) as fees.

Vanguard Consumer Staples ETF VDC

This fund, with assets worth $7.3 billion, offers exposure to 105 large, mid and small-cap consumer staple companies. Its top three holdings include WMT (14.26%), COST (12.96%) and PG (11.15%). 

VDC has risen 2.4% year to date. The fund charges 9 bps as fees.

iShares U.S. Consumer Staples ETF IYK

This fund, with assets worth $1.19 billion, offers exposure to 55 U.S. companies that produce a wide range consumer goods, including food and household goods. Its top three holdings include PG (13.99%), Coca Cola (KO (11.74%) and Phillip Morris International PM (10.10%).

IYK has risen 4.1% year to date. The fund charges 38 bps as fees. 

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This article originally published on Zacks Investment Research (zacks.com).

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