Inflation: Using Lemons To Make Lemonade

How To Handle Inflation

Inflation rates are climbing as consumer confidence falls, fueling an economic recession. For the first time this millennium, single-month inflation rates topped 5% in June 2008, reflecting an increase in the consumer price index. Most consumers blame this trend on the rising cost of crude oil, which in turn drives higher fuel prices. Higher fuel prices are reflected in the price of every product, from the basic necessities, like food, to larger discretionary purchases.

What's Inflation?

On a basic level, inflation means that the value of a unit of currency (in our case, the dollar) does not have as much buying power. Generally, until wages increase to meet inflation, the economy cannot grow. If inflation continues to outstrip economic growth, budgets are tightened and consumers begin to worry as other economic indicators signal that a downturn is coming, if it's not already here.

Your Dollar Isn't Going As Far These Days...

If the cost of gasoline wasn't enough to trigger your inflation sensors, a trip to the grocery store should be. The price of staples, like milk and bread, has nearly doubled in some places, and families are finding that there is little left over after buying groceries and paying for other necessities on a monthly basis.

But It's The Best Time to Invest!

If you have some extra cash at your disposal each month, now may still be the best time to forgo unnecessary purchases. Inflation is an economic indicator; as inflation rises, the stock market is usually falling. This means that stock prices are dropping, and if you are willing to take the risk inherent in investing, now is the time to buy stocks.

When the market recovers (and it always does), and inflation rates decrease, you will see your stock values increase significantly, helping you add to your personal wealth (and possibly weather the next recession).

The Silver Lining

While economists throw around scary terms like inflation, all is not lost. With some budget-tightening, it's completely possible to stay afloat during rough financial times, and you may even stand to profit from the downturn.

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