WASHINGTON, March 14 (Reuters) - When the consumer price index is released later this week, it's likely to look scary because of the run up in gasoline prices that hit at the end of February.
Economists polled by Reuters expect the CPI to be up 0.4 percent in February, double the January rate, mainly on oil price increases that were 11 percent in February. In both January and February, the index would have gone up half as much if food and energy prices were excluded.
Economists in and out of the Labor Department, which publishes the CPI, will try to say that "core inflation" doesn't include those everyday expenses. But not much is more core to the consumer experience than eating, staying warm, and getting to work.
Now, some economists are taking issue with the way the Labor Department measures prices. That could have huge implications for family budgets, especially for budgets (like those reliant on Social Security benefits) that are dependant on CPI-pegged adjustments.
A group called the American Institute for Economic Research has started publishing a new index it calls the "everyday price index" that measures day-to-day costs of consumer life. In 2011, it says, day-to-day costs for most Americans rose about 8 percent for the year, while the official CPI logged a 3.1 percent increase for the year.
Of course, it's not really statistically valid to ignore the cost of housing, cars, furniture and other items that people buy all the time, just not every day. But the "everyday price index" shows that there's more than one way to measure inflation.
Another measure, developed within the Labor Department and called the CPI-E, measures inflation as it affects senior consumers. It has a higher weighting for healthcare costs and has grown faster than the regular CPI for most of the last decade.
Your own personal CPI might be better or worse than the national average. If you are a long-distance trucker or taxi driver, a double digit increase in oil prices could kill your business. If you bought your house 25 years ago, it probably doesn't affect your monthly budget if home prices are rising or falling. If you have teenage sons, recent big declines in milk prices are as good as a bonus on your paycheck.
With folks at the Federal Reserve and elsewhere predicting more economic stability and continued job market recovery, prices could grow faster than they have in recent years. That could happen quickly if oil prices keep rising rapidly, or if the decline in housing prices reverses.
Here are some thoughts about what to do about it.
-- Come to your own conclusions about how quickly inflation can take hold once it starts showing up. The Fed isn't particularly worried. The central bank said it expects the effects of oil price increases to be temporary and for inflation to stay at or below its 2 percent target.
In other periods of economic growth, however, inflation has risen rapidly. In 1976, consumer prices rose 4.9 percent, according to the Labor Department. In the next three years, they went up 6.7 percent, 9 percent and 13.3 percent. It then took three years and a bruising recession, engineered by the Federal Reserve to contain inflation, to bring them down to 3.8 percent.
-- Stockpile the items you care about most. It's the most basic of home economics that if you find your favorite brand of soup or toothpaste on sale, you should buy a bunch. Not so much that you eventually appear on the TV show "hoarders," but enough so that your bottom line is helped by this habit.
-- Act as the Labor Department expects you to act. There's another measure of prices called the "Chained CPI" that reduces the overall inflation rate because it considers the way consumers act when prices go up. According to this measure, for example, if meat prices rise, consumers buy less meat and more beans. If gas prices price, people economize by eating out less or buying fewer treats. So act that way. If you spent 11 percent more on gasoline and heat in February than you did in January, skip some other expense. And eat more beans; they are good for you anyway.
-- Economize on big things. It's hard to imagine a scenario in which energy prices decline and stay low. So efficient cars, less driving, storm windows and the like may be ways to hedge rising prices. Preventive care and a solid flexible spending account (or health savings account) may help you hedge rising health care costs.
-- Do some investing against inflation by putting some of your retirement kitty into the kinds of things that keep pace with or beat inflation. Typically that includes real estate, stocks, commodities and bonds that promise to keep up with the CPI, however it's measured.