March 2, 2012
Official statistics say that inflation is pretty much in control—in January the wholesale measure of inflation rose 0.1%, and the consumer measure of inflation climbed 0.2%. Both of these numbers were below economists' consensus estimates, but were up from the average level of inflation in the previous three months.
But if you step out your door to the gas station or grocery store, you're probably not going to believe those official numbers. It's easy to get "sticker shock" when buying food or gas, especially considering that in the last year, grocery prices are up about 5.3%, and gasoline prices are up about 9.7%—quite a bit higher than the official inflation rates.
This is because the U.S. is heavily weighted towards real estate to the tune of about 40% of the Consumer Price Index. And of course that sector and persistent weak housing prices have been weighing down the average for some time now. So the official rate of consumer inflation in the past year is just 2.9%.
As a result, the Fed is able to say that inflation is under control and keep short-term interest rates artificially low. However, when you take real estate out of the equation, inflation is closer to 8%, a whole lot higher than the "official" rates.
Here's a great article on the subject that I think you'll find interesting: http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think/
So how do you protect your assets against inflation? Well, the good news is that the stock market has historically been a great inflation hedge, and investors are increasingly getting back on board to make sure that their savings isn't stolen via inflation.
This is a stock pickers' market, and the key to success lies in selecting growth-oriented companies that have a strong earnings history. Good luck, and happy hunting!