Tired of Watching Prices Rise? Here's How You Can Beat Inflation on Your Own

I don't know about you, but I've sure noticed how much more expensive groceries have become lately. Suddenly, I'm paying $130 for a few simple groceries. A couple of years ago, those same groceries would have cost me just $90. 

At first, I wondered if that was reality or just my perception, but then the Wall Street Journal reported that the U.S. economy’s rebound from the pandemic has driven the biggest surge in inflation in nearly 13 years. Consumer prices rose by 5% in May 2021 from a year ago.

The largest occurred in August 2008, when the reading rose 5.4%, according to the Wall Street Journal. The core price index jumped 3.8% in May from the year before, which was the largest increase since June 1992.

Can you beat inflation on your own? Let's go over some tips and tricks to help you battle what might seem like the inevitable.

Indicators of Rising Inflation

What causes overall inflation? Let's go over a few reasons that buying hamburgers costs more now, though this isn't an exhaustive list of why inflation occurs:

• Federal Reserve (Fed) policies: The Fed's policies can increase economic activity and encourage consumers to demand particular goods and services.
• Energy prices: When oil prices rise (and they have steadily been driven up over the past year) it affects the prices of goods made with petroleum products. These cost increases slow the supply of other goods because the costs of producing them go up.
• Reduced imports on goods and services: The return of factories to the U.S. results in the rising costs of production, including goods and labor, which causes inflation.

How can you, as an investor or consumer, take matters into your own hands? Let's find out.

Tip 1: Negotiate prices with companies.

As prices rise, remember that companies want to keep your business. Think about all the different types of companies you can negotiate with to drive down costs. Consider how much you spend on everyday items, including the following:

• Insurance premiums
• Cable or satellite television
• Landline phones
• Cell phone plans
• Internet
• Alarm systems
• Storage units
• Satellite radio
• Bottled water delivery
• Credit card APR
• Gym memberships

You can lower the cost of just about anything and can negotiate lower prices on everyday expenses on your own. You may instead choose to get a company like BillFixers to help you lower your bills. Instead of navigating voice mails and other headaches, BillFixers contacts your service providers for you and negotiates better deals at lower prices. The company looks for promotional rates, loyalty discounts, package deals and credits to lower your bills.

Tip 2: Diversify your investments.

When you want to beat inflation, diversification matters. Diversification means spreading your investments so you limit your exposure to any one type of asset. Doing so helps you decrease the volatility of your portfolio over time and reduce risk in your portfolio (because your investments are spread over various asset classes).

Diversifying your portfolio can help shield your money against inflation. It's important to remember, however, that diversification and asset allocation do not guarantee returns.

To provide a hedge against inflation, consider diversifying your investments using a mix of commodities, Treasury inflation-protected securities and equities. Here's a quick overview of inflation-proof options:

• Use real estate as a hedge. When inflation starts to bust out of its box, you can bet that real estate goes up with it. (Have you been keeping up with the news in large cities across the country?) Owning real estate during times of increasing inflation means you can charge more for rent. Earning higher rental income can help you stay ahead when you think inflation's got you beat.
• Invest in TIPS. Treasury Inflation-Protected Securities (TIPS) can protect you against inflation. TIPS principal increases with inflation and decreases with deflation. You receive the adjusted principal or original principal (whichever is higher) when the TIPS mature.
• Choose equity investments. Equities can preserve your portfolio against the downsides of inflation.
• Invest in commodities. Commodity prices, such as natural gas and grains, crude oil and metals, usually rise when inflation goes up, so investing in commodities may help couch your portfolio against inflation.
• Consider REITs. Real estate investment trusts (REITs) serve as an inflation hedge because real estate does well during periods of inflation. REITs, which are companies that own and often operate income-producing real estate, can include office and apartment buildings, warehouses, hospitals, shopping centers, hotels and more. Dividend growth can increase through REITs and can offer an income stream for savvy investors.

Tip 3: Invest in companies that can raise prices.

During periods of higher inflation, consider investing in companies in industries that not only have staying power but that can raise prices during inflationary periods. It's a good idea to evaluate which types of companies are useful during periods of inflation. No matter what happens with the value of the dollar, whatever the business sells will still be in demand.

Investing in low-cost index funds, which hold every stock in an index such as the S&P 500 includes some of these companies that people will continue to come back to, again and again, such as Apple and Coca-Cola.

Tip 4: Pause on big purchases.

Hit the pause button on buying a new car, building a home or improving your existing abode. 

Demand for the home improvement sector with a slowdown on building supplies such as lumber caused record highs. In addition, the cost of vehicles increased due to a shortage of available new cars and an increase in demand. In addition, the COVID-19 pandemic forced the closure of many factories, making the supplies needed for chip manufacturing unavailable for months and causing a chip shortage for vehicles.

Watch for these prices to come down before you make any definitive moves toward these types of purchases.

Beat Inflation on Your Own

Even though you can't control the Fed on your own, you can still do something within your small sphere of influence to battle inflation. 

If you're ready to wage your own war against inflation, keep these tips in mind and choose how you'd like to take it on. You might combine a few tactics or choose just one from this list.