With the Federal Reserve making public its plans to keep interest rates at record lows for the foreseeable future, those people with inflationary concerns are making their voices heard once again. Inflationary hawks were up in arms after the Fed's quantitative easing programs, insisting that the policy would result in significant increases inflation. And, according to the American Institute of Economic Research, inflation is on the rise. While more traditional gauges like the Consumer Price Index may not necessarily reflect the economic pain felt by the average American, the American Institute of Economic Research claims that its system, utilizing what it calls EPI, or Everyday Price Index, is a better gauge for how inflation is really hitting the American consumer. And, according to the AIER, EPI increased over 8 percent in 2011.
Whether or not EPI is a strong gauge for consumer purchasing power, the fact that inflation could be on the rise appears to be hard to avoid. Ben Bernanke, in his testimony before the House Financial Services Committee, stated that he believed that rising gasoline prices could spur a temporary hike in inflation. While Bernanke remained confident that, in the long term, inflation will remain stable, the near-term outlook still has some growing concerned.
Consumer Staples Stocks
One major sector that should most likely be affected by rising inflation is consumer staples. Dealing with core materials and products that are relatively necessary to every consumer, staples stocks have long been viewed as defensive positions. Typically featuring steady if limited growth and strong dividends, consumer staples are an easy investment for investors looking for low-risk stocks to buy.
Rising inflation means rising prices, something that should hit consumer staples. But will this mean that consumer staples stocks are going to take a hit? It's impossible to say for sure, but it seems most likely that the consumer staples sector will continue to chug along without serious hits to its revenue. In short, the nature of consumer staples is that levels of demand are largely set. Much like the way higher gas prices don't hurt oil companies, rising prices for consumer staples don't usually decrease demand. No matter how hard things are economically, products like food or toilet paper are still necessary to consumers at almost any cost. As such, increased prices on basic staples tend to get passed along to the consumer.
Inflation Concerns Hit Consumers, but Not Stocks
In the end, the sad truth is that inflation is most likely to hit consumers harder than anyone else. Consumer discretionary stocks may be affected as penny-pinching consumers spend less on products the don't need, but consumer staples stocks have the benefit of selling products that people can't do without for the most part. As such, inflation is unlikely to have a dramatic affect on consumer staples stocks.