What Should You Do?
First, pay attention to the long-term rate of inflation. Inflation cycles tend to be relatively long-term, so if there are a series of monthly inflation rates above the recent 2 to 3% level, it could be an indicator of worse things to come.
Second, be sure to consider inflation in your investment planning, especially with respect to your fixed income investments. With interest rates at low levels, it may be advisable to consider shorter or intermediate term bonds (and bond mutual funds) for the fixed income part of your portfolio, even if you have to accept a lower current return. Then if the inflation rate increases and bond values drop, owning shorter-term bonds will moderate the drop in bond values.
Third, factor a realistic inflation expectation into your financial planning. It is probably foolish to expect your cost of living to increase at the recent 2 to 3% level throughout your retirement years. The inflation rate is probably more likely to rise over the next several decades than it is to fall. In addition, some of your costs, such as healthcare, will increase as you age.
Inflation is one of the financial facts of life. You cannot control it, and you do not know what it will be in the future. However, you should be aware of inflation trends, factor a realistic expectation into your thinking, and take steps to protect your finances just in case the inflation rate rises.