Inflation Makes A Comeback

By Daniel Kadlec

In a surprise development, the government reported last week that consumer prices jumped 0.5% in March, or 6.2% on an annual basis, reminding us of the days when double-digit inflation had everyone clipping grocery coupons. In case you don't remember, here's a quick refresher on what inflation means to you.

--Is inflation back?

Yes. Technically, it never went away. Consumer prices creep up a bit every year. But for the past couple of decades the annual rate hike has been falling--to just 1.7% in the past 12 months. Now the rate of increase is rising. It should exceed 2% this year and reach 4% to 6% over the next five years.

--What will get more expensive?

Health care and education are inflation's mainstays, and gasoline has been going up for a while. But in March, the prices of hotels, clothing, airline tickets and used cars all showed big jumps. Next to climb will be anything tied to raw materials, the prices of which have been on a tear (see YOUR TIME, page 148). Nails, envelopes, paper clips, wallboard and such foods as cereal and meat should reflect the pinch soon. Services from gardening to accounting will probably cost more later.

--Is this good or bad news?

If you're out of work, it's a positive sign. Rising prices signal renewed economic vigor and a healthier job market. For everyone else, inflation is a serious pocketbook drain. Wage increases aren't likely to keep pace initially, and rising loan rates will further cut your buying power. Mortgage rates have already begun edging higher. Pretty soon we'll have to say goodbye to five-year, 0% car and truck loans.

--Can anything be done about it?

Not a lot. But few foresee true runaway inflation like that of the '70s. Global competition is a potent antidote to big price increases. Meanwhile, shop smart. The Internet makes price comparisons on cars, airline tickets and many other things easy, and if the price of apples goes up, try oranges.

--By Daniel Kadlec