Best Strategies to Beat Rising Prices

There's nothing gourmet about scrambled eggs and toast. But with the cost of eggs up 30% from a year ago, the price of bread up 16%, and the milk to wash it down up 15%, you'd better be serving breakfast on a silver platter.

Prices of some staples are sky-high and climbing, just like the gasoline (up 26% from a year ago) that it takes to drive to the grocery store. At a 3.9% annualized rate, inflation is running higher than the long-term average of 3.4%. Blame the growing global demand for goods and the raw materials to produce them, a weak dollar that raises the price of imports and an increased focus on alternative fuels, such as ethanol, at the expense of food production.

We don't think inflation will approach the levels of the 1970s, when prices increased at an annualized rate of 7% before peaking at 13.5% in 1980. We expect something more on the order of 4% this year.

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After all, computers, clothes, furniture and cars are all getting cheaper. But with energy accounting for 7% of the average family's budget and food taking up nearly 14%, you're likely feeling the pinch.

The first line of defense is to maximize savings at the gas pump and the grocery store. Search the Internet for the lowest gas prices in your area and pay with a gas-rebate card. Travel light: Keeping a 100-pound load in the trunk can reduce fuel economy by 2%, and a roof rack loaded with cargo can cost you as much as 20%.

Find grocery coupons online at Coupons.com and CoolSavings.com. Many grocers, such as Kroger stores (which include Ralphs and King Soopers), will double coupon savings. Other retailers, including Wal-Mart, will match a competitor's low price. Look beyond warehouse stores for discounts on bulk quantities. Many Whole Foods stores will discount wine when you purchase six or more bottles. Buy in season, scouting local farmers' markets at LocalHarvest.org.

Prepay what you can before prices rise. Cruise operators locked in costs months ago, so many still offer bargains on prepaid tour packages despite fuel and currency surcharges. Azamara Cruises is offering booking incentives through November on European cruises.

Refinance as much of your adjustable-rate debt as you can, including mortgage, home equity and credit cards, to a fixed rate. You'll repay loans in increasingly cheaper dollars and you'll avoid the rate hikes that inflation inevitably brings. Conversely, avoid bonds because their fixed payouts lose purchasing power with each inflationary uptick. The same advice applies to inflation-indexed bonds. They've been bid up to stratospheric prices (and therefore yields are rock-bottom).

Inflation-wary investors can also find opportunities in the stocks of companies that are able to pass along higher costs -- the ones that make or sell the things that people will buy almost no matter how strapped for cash they get. In that vein, investors might consider Diageo PLC (alcoholic beverages), Johnson & Johnson (health-care products), Walt Disney (entertainment) and Zimmer Holdings (orthopedic products).