Last week, the Labor Department put out two important inflation measures: the Producer Price Index (PPI) and the Consumer Price Index (CPI). The PPI, which tracks the average change over time in the selling prices received by domestic producers, rose 1.6% in February. The CPI, which came out two days later and tracks how much consumers pay for goods and services, was up .5% in February.

Of course, I don't have to tell you that inflation bells are ringing. You've seen the jump in prices at the grocery store, and, maybe more significantly, at the gas pump.

"The question for consumers right now is: Is this a permanent change that is signaling that inflation is about to take off -- or a temporary increase? Should you read the data as a blip driven by the Middle East, or is it a sign that we're about to hit an inflationary era?" asks Mark Thoma, a professor of Economics at the University of Oregon and author of the blog Economist's View.

His take? We're not on the verge of a massive inflationary episode, but as the economy recovers, there's a good chance that food and other commodity prices will stay high.

Here's what you need to know about inflation:

Supply and Demand
We talked about this recently, but one reason food prices will likely stay on the higher end is because of basic economics: Lower output plus increased demand equals high prices. "We're seeing higher world prices for food and other commodities, and that's not something that the Fed can do anything about. When there aren't enough tickets to the concert, prices go up," explains Thoma. "We're not on the verge of a great big Fed-induced inflation, but I do think that we're likely to see a higher cost of living."

Labor Is Steady
Luckily, raw materials only account for about 30% of the cost of an item. Labor, on the other hand, is 70 to 80%, according to Thoma. That means increased energy prices may not bleed through into other areas of your budget -- in fact, excluding food and energy, the consumer price index rose only .2% in February, and apparel actually declined .9%. Right now, wages are relatively steady -- if we start seeing them take off, other prices are likely to follow, and that's when inflation might start to have a bigger impact. With the current job market, this isn't yet an issue -- and it may not be for quite a while.

Interest Rates Should Remain Low

Thoma says he doesn't expect the Fed to change interest rates, at least through the end of the year, unless inflation really does start suddenly taking off. Of course, this news has a mixed impact: If you're living on interest income -- as many people in retirement are -- you want rates to go up. If you're living on variable interest rates -- credit card debt, or an adjustable rate mortgage -- an interest rate increase would kick you when you're down.

Plan Ahead
Your best protection against rising prices -- whether they're at the pump, the grocery store, or the mall -- is to plan for them. That means squirreling away money, so you have an emergency fund, and keeping some fat in your budget so a higher grocery bill won't throw your whole month off.




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dumasjohnj

Every four years the politicians say it will take 8 years before you will get any oil from drilling so drilling for new oil will never help supply.

March 28 2011 at 7:34 AM Report abuse -1 rate up rate down Reply
fpfp040408

GOD BLESS PRESIDENT OBAMA = courage, wisdom, decisiveness ! Obama's handling of the Egyptian crisis and now the Libyan crisis plus Japan proves what a brilliant & great leader he is , respected and admired the world over

See full article from DailyFinance: http://srph.it/ifLCUT

March 27 2011 at 11:10 AM Report abuse -1 rate up rate down Reply
3 replies to fpfp040408's comment
God Bless

SOULD I WORRY LETS SEE; SR. NO COST OF LIVING IN 2 YRS. YET AS STATED ABOVE EVERYTHING AS GONE UP ( choices now FOOD OR MEDS) YET congress voted theirselves a raise prez is making useless trips stay hm and wk on budget stay out of other countries business stop giving SSI to illegal aliens, stop bail out big business, no more aid to other countries i,m not talking about helping JAPAN HELPING HAND NOT HAND OUT . IF SRS CAN EXIST ON NEXT TO NOTHING THAN prez and congress should be able to wk together and fix budget

March 27 2011 at 7:00 AM Report abuse +2 rate up rate down Reply
2 replies to God Bless's comment
fpfp040408

GOD BLESS PRESIDENT OBAMA = courage, wisdom, decisiveness ! Obama's handling of the Egyptian crisis and now the Libyan crisis plus Japan proves what a brilliant & great leader he is , respected and admired the world over

See full article from DailyFinance: http://srph.it/ifLCUT

March 27 2011 at 11:16 AM Report abuse -3 rate up rate down Reply
billsuruncle

Shouldn't you be cleaning your Obama "blow-up" doll today?

March 28 2011 at 6:16 PM Report abuse +3 rate up rate down Reply
pafp127

reply to bdyman101: Funny how our economy collapsed the fall of 2008 after the gop passed their 2002 banking legislation that allowed predatory lending and less oversite, and the 2004 gop legislation that taxed overseas profits at 5.25%, and it was Bush who refused to meet with our manufacturing sector, refused to enforce existing trade laws, refused to listen to his own economic advisors, and spent nine weeks per year on vacation. We now have a president negotiating trade deals on behalf of american workers - not for corporations to make record profits overseas. And trickele down - doesn't work. What does work is giving business 100% write offs for improvements made in THIS country.

March 26 2011 at 7:56 PM Report abuse +2 rate up rate down Reply
pafp127

Yes, food is going up because of demand, because of the droughts experienced in Russia, Australia, and Africa, as well as aspeculative buying. Gas has gone up also due to increased demand and unrest in arab countries. What is good is the fact that our economy is recovering. There were four reports that came out on Daily Finance. Our manufacturing sector has seen 19 months of gains as well as exports. Unemployment going down. The 100% business write offs for improvements made in THIS country is creating demand for equipment. As these manufacturing paychecks come back into our communities it creates demand for goods and services which leads to more jobs, our tax base returns, the natl debt addressed more aggressively, and the value of our dollar goes up.

March 26 2011 at 7:50 PM Report abuse rate up rate down Reply
CASTLEMIKE

Not at all according to the government and The Fed so I think I'll worry since Energy and Food are not components of the CPI.

March 26 2011 at 1:26 PM Report abuse +1 rate up rate down Reply
bdyman101

obama is a fool....has no idea how to run anything ...but thinks he is robin hood...and cant or will not prove his birth certificate is american...lol he is good at fooling stupid people i will give him that...you still making your house payment and putting gas in your car.????or are you taking tax payer money(ebt) to do it...lol

March 26 2011 at 11:05 AM Report abuse +1 rate up rate down Reply
1 reply to bdyman101's comment
fpfp040408

GOD BLESS PRESIDENT OBAMA = courage, wisdom, decisiveness ! Obama's handling of the Egyptian crisis and now the Libyan crisis plus Japan proves what a brilliant & great leader he is , respected and admired the world over

See full article from DailyFinance: http://srph.it/ifLCUT

March 27 2011 at 11:17 AM Report abuse -3 rate up rate down Reply
bdyman101

why cant you liberal democrats see the importance of Americans being self sufficient??....drilling our own oil??? our own steal...our own food....obama has given billion dollars to south america to drill for oil....lol in the gulf where he stopped Americans from drilling....face the music liberals democrats you have destroyed the American way of life...you have hand-cuffed the American dream...where you were allowed to have (life liberty and the pursuit of happiness)..in the name of political correctness and social equality...i understand why you liberal democrats hate the constitution and bill of right....every man and women is born with 2 hands 2 feet and a brain....if you do not do anything with them ,then you get in life what you put into it...stop asking for hand out cause you neighbor has a new car and a boat and goes on vacation...because he went to college and learned a trade instead of sitting on his butt drinking and sleeping all day....lol it is no wounder america is 14 trillion dollars in dept taking care of you lazy slobs...oppps im sorry that wasn't politically correct was it...

March 26 2011 at 10:58 AM Report abuse +2 rate up rate down Reply
fpfp040408

GOD BLESS PRESIDENT OBAMA !!

March 26 2011 at 10:54 AM Report abuse -1 rate up rate down Reply
fpfp040408

GOD BLESS PRESIDENT OBAMA = courage, wisdom, decisiveness ! Obama's handling of the Egyptian crisis and now the Libyan crisis plus Japan proves what a brilliant & great leader he is , respected and admired the world over

See full article from DailyFinance: http://srph.it/hnkU13

March 26 2011 at 10:53 AM Report abuse -3 rate up rate down Reply