Tips for fighting inflation

BY EMI ENDO

Headlines about a 17-year high in the inflation rate and consumer prices rising faster than expected last month came as no surprise to many consumers.

The recent dip in energy costs leaves Long Island economists hopeful the inflation rate will soon slow down. A recent U.S. Labor Department report showed that in July consumer prices had risen 0.8 percent compared to the previous month, and the 12-month inflation rate jumped to 5.6 percent.

A top U.S. economist told Bloomberg Radio the rate will drop "quite dramatically" next year.

Until relief arrives, financial experts and consumer advocates offer tips on making your dollars stretch further in your bank account and at home.



Personal finance

Making sure you have access to your money is crucial in uncertain economic times in case of an emergency, financial experts said yesterday.

"Cash is king," said Martin Cantor, director of the Long Island Economic and Social Policy Institute at Dowling College.

"Keep as much cash as you can, and you want to invest that cash in very secure and very short-term instruments," such as certificates of deposit, he said.

Mark Klee, executive vice president of Garden City-based American Fund Advisors, said that in addition to a cash safety net and short-term investments, a laddering approach, spreading an investment with different maturity dates, "historically has been a good strategy."

Instead of real estate - formerly a safe hedge against inflation - market watchers said investing in certain stocks was a better bet, despite market volatility.

"At this point, while you have to be selective, that is the best investment category," said Klee. He said that as a whole, stocks have performed below average since the late 1990s, suggesting they could improve.

For instance, Ed Yardeni, president of Yardeni Research Inc., of Great Neck, said inflation shouldn't have a dramatic impact on some technology companies.

One long-term investment tool explicitly tied to inflation is Treasury Inflation-Protected Securities, which are treasury bonds.

The principal of a TIPS increases with inflation as measured by the Consumer Price Index, said Paul Herbert, associate director of fund analysis at Morningstar Inc., a Chicago-based independent investment research firm.

"You'll get lower returns, generally speaking," than with other, more volatile instruments, he said.

Yardeni said, "It's not a great way to get income, but it's a good way to preserve the value of your capital."



Trimming your budget

Keep an eye out for sales and coupons in the paper and online through Web sites that collect deals. Check out fatwallet.com, slickdeals.net and dealhack.com.

For grocery shopping, follow the basic rules: Don't shop when hungry and do bring a list to avoid last-minute, unnecessary purchases.

Try the cheaper store brands and compare unit prices, suggests Consumer Reports.

Just because a product is in a bigger size doesn't necessarily mean it's cheaper.

What's more, the Web site Consumerist.com has been keeping track of "bad deals" in which retailers advertise "buy two and save" or other specials that do not actually save any money.



Buying now

If you're in the market for a big purchase such as a car, paying with today's dollar would save money if inflation keeps going up.

Klee said while consumers trying to make ends meet may not have the luxury of taking the long view, "Inflation, by definition, encourages people to buy now because the expectation is that it will cost more in the future."

Alan Newman, editor of the Wantagh-based CrossCurrents, an investment newsletter, offered a specific suggestion: "If you're thinking of getting a car, by all means, get a hybrid."