Ray Hennessey, editor of SmartMoney.com, offers up some thoughts on weathering the storm.
"What's going on is the economy is strong and the economy is stronger than a lot of people expected," explains Hennessey, "and when you have a very vibrant economy the risk is always the prices are going to go up."
How should people invest?
Consider investing in blue-chip stocks, Hennessey says. Big, dividend-paying consumer names generally weather inflation better than even bonds, since these are the companies raising prices to the consumer. They usually benefit from what's known as a "flight to quality" that investors undergo in downturns like this.
Also consider commodities. New exchange-traded Funds and mutual funds that invest in commodities make it easier than ever to invest in these, which typically do well in inflationary environments. However, people need to stop and think before investing in commodities like gold.
"Gold used to be the perfect inflationary hedge," Hennessey says. "But gold prices are at multi-decade highs. So there are certain areas like gold, and even oil, where you have to make the judgement of whether or not the prices are going to continue to go up before you invest."
Finally, invest in TIPS. These are Treasury Inflation-Protected Securities, which are essentially bonds that pay a yield but also have their principal adjusted for inflation. That means when inflation rises, so does the value of the TIPS.
And looking towards the future, what should we expect?
"Inflation is here to stay but let's step back for a second and remember we've had almost no inflation for the longest period time," examines Hennessey. "It's not an extraordinary environment right now, we are just getting back to where we used to be."
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by Ray Hennessey and Jenn Eaker