We've all been so focused on whether we are officially in a recession that we may not have paid enough attention to the creeping threat of inflation.

But a period of rising prices is equally threatening to your financial well-being.

The US Federal Reserve recently decided to keep its target for the federal funds rate at two percent, partly because of concerns about inflation.

"Uncertainty about the inflation outlook remains high," the Federal Open Market Committee, which sets the funds rate, said in a statement in announcing its rate decision. "The upside risks to inflation and inflation expectations have increased."

Inflation, simply put, erodes the purchasing power of your dollar.

Talk to anyone who had to pay for gas, groceries or any consumer goods in the 1970s and they'll tell you how hard inflation can be.

I remember those days. I recall my grandmother piling us in the car before dawn, getting us up that early to get in line to buy gas. At one point, in many areas, you could only buy gas on odd or even days of the month. Which day you could buy gas depended on the last digit of your licence plate number.

Federal Reserve chairman Ben Bernanke also remembers that time, as he recounted in a speech to graduating seniors at Harvard University in early June.

"Then, as now, we were experiencing a serious oil price shock, sharply rising prices for food and other commodities, and sub-par economic growth," Bernanke said.

The economy had just gone through a severe recession, during which output, income and employment fell sharply and the unemployment rate rose to 9 percent, Bernanke told the graduates. Consumer price inflation, which had been around three percent to four percent earlier in the decade, climbed to more than ten percent.

Bernanke doesn't think we're headed for a similar slide into a '70s-style economic crisis. The overall inflation rate has averaged about three-and-a-half percent over the past four quarters. The inflation rate is significantly larger than he would like but not as disturbing as in the mid-1970s.

"I see the differences between the economy of 1975 and the economy of 2008 as more telling than the similarities," he said. "Today's situation differs from that of 33 years ago in large part because our economy and society have become much more flexible and able to adapt to difficult situations and new challenges."

Still, with gasoline rolling past $4 per gallon and utility bills skyrocketing, it's enough to give you a heat stroke. We might not get to a double-digit inflation rate but the rate of inflation is hurting families already struggling to make ends meet.

So what does a family do when they've been setting aside, say, $100 a month for gas and now it costs $300 or $400 a month? What do you do if you've budgeted $500 for food for your family of four and now that expense has increased by 20 or 30 percent?

How can you budget when prices keep rising, but your income is flat or declining?

If you haven't already moved toward becoming more energy efficient, you won't make your budget work in an inflationary environment.

Drive slower. Use less of your air conditioner. Walk through your home and see what you can do to make it more energy efficient. I started charging my kids $1 every time a light was left on after they exited a room. They've become much better at energy conservation since it began costing them money.

Start shopping smarter by switching to store-brand grocery items, although when I bought some off-brand soda, my oldest, Olivia, did rag on me for days. But, hey, it was 69 cents for 2 litres. If the kids don't like the store-brand soda they can drink water, which is better for them anyway.

Bend down. Often the less costly items are on the lower store shelves.

If you're worried about inflation eroding the buying power of your investment dollars, consider putting some (not all) of your money in two inflation-indexed securities offered by the US Treasury: Treasury Inflation-Protected Securities (TIPS) and I Bonds. Both are designed for investors who want inflation protection and a guaranteed rate of return on their principal. With TIPS, the principal and interest payments are adjusted to compensate for changes in inflation. The earnings rate on an I Bond is a combination of a fixed interest rate plus the rate of inflation. You can buy TIPS and I Bonds from financial institutions and at www.treasurydirect.gov.

I know the economic whipsaw we're in is so frustrating. We have to worry about a recession. And now we have to be concerned about escalating prices leading to budget-busting inflation.

But you have to do more then fret. The key to beat inflation is to do what Bernanke says. You have to be flexible with your finances. You have to act. Stop talking about cutting costs and do it — now.

Listen to Michelle Singletary online at www.npr.org. Readers can write to her c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20081. Her e-mail address is singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.