As Inflation Hits 3-Year High, These 2 ETFs Are Designed to Hedge Against Rising Costs

Key Points

• Alongside rising inflation, short interest for major inflation-protected funds like the Schwab U.S. TIPS ETF (SCHP) and Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) have dropped significantly, indicating that investors increasingly expect higher consumer costs to remain sticky.

While the price of a hot dog at Costco NASDAQ: COST has remained $1.50 for the past 41 years, it feels like the cost of just about every other good and service has erupted.

According to data from the U.S. Bureau of Labor Statistics, dining out at a full-service restaurant will now set you back 3.8% more than it did a year ago. Staying home and stocking the fridge? Non-alcoholic beverages are up 5.8% while fruits and vegetables are up 6.1%. And if you plan to grill some steaks this summer, you will have to cough up an average of $14.27 per pound for sirloin, or nearly 17% more than in 2025.

In May, inflation—as measured by the Consumer Price Index (CPI)—hit a 4.2%, good for a three-year high driven chiefly by a 23.5% year-over-year increase in energy prices. And while that energy inflation may be an outlier driven principally by the Iran war, economists expect prices to remain elevated for the remainder of the year despite a ceasefire.

For conservative-minded investors looking to safeguard their portfolios and budgets against sticky inflation, exchange-traded funds (ETFs) that hold short-term bonds and U.S. Treasury Inflation-Protected Securities (TIPS)—which have their principal values directly adjusted upward with the CPI—.

As Inflation Heats Up, Bond ETFs Look Increasingly Attractive

After inflation reached a 40-year high of 9.1% in June 2022, the Federal Reserve’s responsive monetary policy to pandemic-era price drivers was effectively doing its job. In April 2025, the monthly CPI print had come within a fraction of the central bank’s 2% target, ultimately registering 2.3%.

However, since then prices have been on a steady uptick, punctuated by the fallout from the Iran war. And while energy costs have soared, so too have all the supply chains they affect, including petrochemicals, plastics, fertilizers, and transportation.

That has increased the appeal of TIPs, which are issued by the U.S. Treasury and indexed to the CPI to safeguard purchasing power. They are issued in terms of five, 10, and 30 years and pay interest every six months.

But in an ETF, getting exposure to TIPS and short-term bonds means investors can insulate their portfolios while enjoying better liquidity. That is because bond ETFs do not have maturity dates like fixed income alternatives. Instead, fund managers continuously buy and sell fixed income securities while maintaining a specific target and providing a steady flow of interest payments in the form of dividends—some of which are paid monthly—while providing a layer of portfolio stability.

Schwab’s TIPS Alternative With Monthly Dividends

Launched in August 2010, the Schwab U.S. TIPS ETF NYSEARCA: SCHP is specifically designed to track TIPS at an extremely low cost.

The fund carries an expense ratio of just 0.03%, and its dividend currently yields about 4.%, or $1.06 per share annually.

With more than $16 billion in assets under management (AUM), the SCHP invests primarily in investment-grade fixed income by tracking a market-value-weighted index of U.S. TIPS with at least one year remaining to maturity.

The ETF is about flat so far this year and over the past 52 weeks. But the idea behind investing in the SCHP is its ability to provide capital preservation alongside income, which it is accomplishing through its monthly dividend. However, prospective investors should note that payout amounts can fluctuate because the fund’s accrued interest is adjusted for inflation, reflecting the underlying TIPS.

Adding a layer of safety, current short interest for the SCHP stands at just 0.13%. That marks a nearly 88% reduction since the prior month and reflects shifting sentiment around the likelihood of inflation remaining sticky. To put that in dollar figures, $158 million worth of shares were shorted on April 30 compared to just $20 million on May 29. That marks the lowest level since Q4 FY2025, when just $15 million worth of shares were shorted.

Vanguard’s TIPS Fund With a Longer Horizon

Launched in October 2012, the Vanguard Short-Term Inflation-Protected Securities ETF NASDAQ: VTIP mostly invests in investment-grade fixed income by tracking an index of U.S. TIPS with less than five years remaining to maturity.

Because of that broadened timeline, the fund has outperformed the SCHP this year with a modest gain of about 1.3%, but is also about flat over the past 52 weeks.

With about $19 billion in AUM, the VTIP also carries an expense ratio of just 0.03% and pays a dividend that currently yields about 3.6%, or $1.80 per share annually.

The fund is also a favorite among the smart money, with institutional inflows of $3.57 billion over the past 12 months more than tripling outflows of $1.14 billion.

Meanwhile, current short interest is just 0.14%, down 1.33% over the previous month, with $24 million worth of shares shorted.