How to Prepare for Inflation

http://www.associatedcontent.com/article/6158374/four_money_things_that_will_matter.html?cat=3Contributors note: This article first was published on Associated Content in April 2011, but my profile lists it as a movie review, which it is not. This disconnect is an apparently unsolvable technical issue. It is republished here with the correct title so readers can find it, and so I can claim my rightful page views.

Inflation is here again, and it is not a good thing for consumers because wages are not rising at the same rate. We've all seen gasoline prices spike in recent months. And now it is getting serious. According to an announcement from Hershey, the candy company is increasing the price of candy bars by 10%. Chocolate comes from cocoa, and the world's largest producer is the Ivory Coast which is experiencing political problems. Candy bars are delivered by truck and distribution now costs more because of increasing oil prices. The CEO of Wal-Mart Bill Simon notes that Wal-Mart is already charging more for cotton and dairy products. Moody's Economy.com economist Mark Zandi said he learned from a meeting of consumer product company officials that many of these companies are on the brink of raising prices on many products. So, stand by for more price increases!

Inflation means prices will be higher in the future. One strategy is to anticipate what you will need in the future and buy it now before prices go up. That may work with cotton clothing and shoes but it won't work with food and gasoline. If you plan to buy a car or a home in the near future, you might move up the purchase date in order to get a better interest rate. When the Federal Reserve determines that inflation is a threat to the economy, they will raise interest rates. I've heard CNBC commentators talk about a rate hike as early as year-end.

The higher cost of goods and services means that we need to pay more attention to our family budget. Most of us are on a tight budget. When one budget item costs more, we need to cut back in another area. When all budget items increase as once, we must make wise choices so we don't get overwhelmed with debt. That could mean tough decisions and changing our life style.

On the savings and investment front, coming inflation might mean buying a CD with a shorter maturity date so we won't get locked in to a low rate for a long period. We might put a maturing CD in cash for 6-9 months instead of rolling it over now. When interest rates go up, the value of bonds goes down. This is not a good time to put additional money into bonds. Stocks are a great way to outpace inflation over the long run. But stocks are risky and they have gone almost straight up over the past two years. Check with your fee-only financial advisor/Money Coach.

I have dusted off my little book "301 Ways to Fight Inflation" bu EE Smith which cost 49 cents back in 1980. It has helpful hints and lists which products are best buys in each month. I suggest everyone find a book or article like this and begin to prepare for higher prices.

(Source: As Inflation Debate Heats Up, Prices Just Keep Climbing 1 Apr 2011

By: Patti Domm CNBC Executive News Editor)

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