Inflation: Up or down, a risky road ahead

In case you didn’t notice, the price of just about everything from a carton of milk to a Prada handbag has dropped in the last month, said Jennifer Waters in MarketWatch.com. “For consumers, at least those who still have some disposable income to spend, the lower prices on so many items—deflation—is welcome news.” Still, these fire-sale prices may not last long, and even now recent economic numbers indicate very slight inflation in the economy at large. So now’s the time to look for deals, says David Wyss, chief economist at Standard & Poor’s. “This is a time when you might consider if you have to do a replacement or an upgrade of things, to do it.”

While economists are worried about the threat of deflation, investors should position themselves for the return of inflation—perhaps at very high rates, said Todd Wenning in the Motley Fool. Federal Reserve Chairman Ben Bernanke is currently “using every tool at his disposal to reinflate the economy by flooding it with more dollars and lowering interest rates.” But knowing when to give the economy gas and when to tap the brakes isn’t easy, and unless the Fed’s timing is impeccable, inflation will be back before we know it. “With the market currently betting to the contrary, now is the time to go shopping for inflation-fighting assets,” such as dividend-paying stocks. Johnson & Johnson, ConocoPhillips, and Waste Management—to name a few—“have a rich history of boosting dividend payouts and have more than enough free cash flow to continue to raise their payouts to help you battle the coming inflation wave.”

Treasury Inflation Protected Securities, or TIPS, are also a good buy right now, said Jonathan Burton in The Wall Street Journal. These are designed to provide protection from inflation, and right now, “with the market focused on deflation, the inflation insurance that TIPS provide is cheap.” The best way to buy TIPS is via mutual funds or exchange-traded funds that specialize in them. One caveat, from Morningstar analyst Michael Herbst: “A number of mutual funds that carry the inflation-protected moniker have invested in other things.” If it’s TIPS you want, make sure it’s TIPS you get.

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