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Inflation's Up: How to Beat Big Price Hikes Now

Wholesale prices jumped a disturbing 0.7 percent in March, surprising analysts and worrying consumers who might expect those increases to show up in market prices soon. Big price hikes were seen in food (mainly vegetables, which rose 49 percent!), gasoline, and jewelry.

Ho hum, said the economists, who were underwhelmed by the baseline 0.1 percent increase shown by producer prices, excluding the food and energy categories. They found excuses for the big hikes: bad winter weather destroyed farm crops, oil prices retraced recent declines, reduced demand for gasoline, gold prices have been up, blah, blah, blah. But bond buyers, who actually have to put money on the line with their inflation bets, sold Treasuries on fears that higher prices and interest rates are down the pike. And policy wonks might be able to "strip out" food and gasoline, but how many households can say that?

So, the bottom line is rising prices for U.S. households, as producer prices feed through to consumer prices in the upcoming summer months. How much those prices rise will depend on how quickly the economy grows and how willing and able consumers are to support those higher prices. Here's how to ready your budget and your bank account for higher costs.

  • Buy TIPS, carefully. Treasury Inflation Protected Securities will protect your money from consumer inflation, but they won't necessarily protect it from interest rates that rise more rapidly than consumer prices. And they have tax consequences that can sting. So, tuck a good TIPS fund into your retirement account, but don't go overboard.
  • Consider commodities, too. Gold and other hard assets have already risen on economic worries. But keeping a corner of your portfolio in a good commodities fund that buys shares of paper, energy, minerals, and other commodities producers will keep your portfolio from tanking should inflation rise significantly.
  • Go green. Hey, it's Earth Day. Every time gasoline costs rise, that makes hybrids, electric cars, and small vehicles look better and better. Also, walking is good for you.
  • Jewelry? Not a necessity. Hey, I'm a mom heading into Mother's Day, too. But if you're still paying off your home equity line and your credit cards, you don't really need a higher-priced bracelet this year. Ask for some organic broccoli instead.
  • Eat healthy. That whole locavore concept -- eating foods grown near where you live -- makes sense when big agriculture is going to go raising their prices willy-nilly. And even if you have to spend more on broccoli and strawberries, that just leaves you less for Pringles and Pepsi. That's good for you, right?
  • Grow your own. Right now, you can hit up east coast farmers markets and buy a dozen arugula plants, a dozen basil plants, and a packet of coriander seeds for less than $10. Eat that, expensive grocery store: We're all going to go long on lettuce.
Photo by Jeff Keen on Flickr.
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