Recent reports on inflation suggest that the spike in the prices of indispensable goods and services over the past two years is finally coming down as fuel prices fall.

This means consumers are now in a better position to open up their wallets, eventually benefiting consumer discretionary stocks such as Carnival Corporation & plc CCL, MGM Resorts International MGM and LiveOne, Inc. LVO.

Retail Inflation Cools Down

After a painful increase in retail inflation, price pressures cooled down to its slowest pace in more than two years in June. The Bureau of Labor Statistics stated that the consumer price index (CPI) increased 3% year over year last month, less than analysts’ estimate of a rise of 3.1%.

The yearly rate of inflation decelerated from May’s increase of 4%, and was also the lowest rate since March 2021. Notably, retail inflation slowed down for 12 successive months. The decline in the cost of airfare  and prices of used vehicles were primarily responsible for the slowdown in broader price pressures.

Retail inflation more than halved after a sharp rise in energy prices pushed it to a 40-year high of 9.1% in 2022.

Wholesale Price Data Indicates Easing Inflationary Pressure

Last month, the annual increase in producer prices was also the smallest in almost three years, indicating that the economy is now in a disinflation period. The Labor Department added that the producer price index (PPI) increased a meager 0.1% year over year, the smallest annual rise since August 2020.

What’s more encouraging, in May, the headline PPI number, in reality, dropped by 0.4%, in contrast to the earlier reported 0.3%. Producer prices are declining as supply-chain bottlenecks fade, and demand for goods takes a beating due to a series of interest rate hikes.

Fed’s Favored Inflation Index Moderate

The chosen inflation index of the Federal Reserve too cooled down in May. Per the Bureau of Economic Analysis, compared to the same period last year, the personal consumption expenditures (PCE) price index increased by 3.8% in May, its lowest annual rate in two years, again an indication that inflation is slowing.

The decline in energy prices dragged the PCE Index lower in May. Energy prices fell 13.4% in May from a year ago and were down 3.9% from the prior month.

Consumer Discretionary Stocks to Benefit

With price pressures weakening, the purchasing power of consumers increases. In other words, consumers are now in a much better position to splurge on nonobligatory items. Therefore, it’s prudent for investors to cash on this trend and bet on solid consumer discretionary stocks.

We have, thus, selected three consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boast a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carnival operates as a cruise and vacation company. Carnival has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for CCL’s current-year earnings has moved up 51.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 97%.

MGM Resorts International is a holding company and primarily owns and operates casino resorts through wholly owned subsidiaries. MGM Resorts has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for MGM’s current-year earnings has moved up 2.7% over the past 60 days. The company’s expected earnings growth rate for the next year is 19.6%.

LiveOne provides a platform for live streaming and on-demand audio, video, and podcast/vodcast content in music, comedy, and pop culture. LiveOne has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for LVO’s current-year earnings has moved up 200% over the past 60 days. The company’s expected earnings growth rate for the current year is 154.6%.

Shares of Carnival, MGM Resorts and LiveOne have gained 121.5%, 46.1% and 150.2%, respectively, so far this year.

Carnival Corporation (CCL): Free Stock Analysis Report

MGM Resorts International (MGM): Free Stock Analysis Report

LiveOne, Inc. (LVO): Free Stock Analysis Report

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