| NEW YORK
NEW YORK May 21 Last month was not a good one
for inflation hawks, unless they were looking for validation.
The U.S. consumer price index was up 0.3 percent in April,
its largest increase in 10 months. And producer prices were up
0.6 percent - their biggest monthly rise since September 2012.
Of course, that does not mean prices have run amok; many
think we still have more to fear from ice than from fire,
macroeconomically speaking. But for those of us who remember the
1970s, even barely, it is a sign that ought not to be ignored.
In 1972, the U.S. Labor Department's consumer price index
rose 3.3 percent. The next year, it was up 8.7 percent, and the
next year, it soared 12.3 percent. In the 10 years ended with
the beginning of 1983, consumer prices more than doubled.
That history presents savers and investors with a quandary:
How do you protect yourself from the possibility of future
inflation without tying up too much money in unrewarding
Here are a few options:
- Own your home. The brief "owning a home is no longer the
American Dream" period seems to have ended in most locales; if
you buy a home and live in it long enough to pay off your
mortgage, you're likely to hold your own against a lifetime of
price appreciation. The average annual appreciation rate for
single family homes between 1968 and 2013 - encompassing some
very good and very bad periods - was 5.3 percent. The average
annual inflation rate over that time was 4.4 percent.
Furthermore, by locking in a fixed low interest rate mortgage,
you'll beat rising rates as well.
- Buy dividend growth stocks. Over long periods of time,
stocks beat inflation handily, though they may lag during
individual years of very high inflation, according to data from
Ibbotson Associates, a subsidiary of research firm Morningstar
Inc. Companies that increase their dividends every year can
provide an extra buffer. As consumer prices rise, so do the
- Consider mining and natural resources companies. All of
those commodities - gold, minerals, oil - tend to go up in price
when consumer inflation is accelerating. But you can't do much
with a commodity and they don't pay dividends. They cost money
to store, even if you're holding them through a fund. Instead
look at the companies that also make money for extracting those
resources; they'll make money when prices rise, and most of them
pay dividends too.
- Limit your spending. Of course, the less money you spend,
the less you have to worry about prices. That can mean setting
up your life to reduce those expenses that tend to rise the
fastest: living in an energy-efficient home and driving a
fuel-efficient car, and keeping up with preventive medical care.
Shop for deals when you can get them on the big items designed
to last a long time. For example, with General Motors Co
recalling nearly 12 million vehicles in the United States so far
this year, it would not be surprising if shoppers found new
deals on GM cars.
(Editing by G Crosse)