You can’t be a little pregnant, and you can’t have a little inflation. It’s the old axiom about rising prices that the market seems to have forgotten over the last several years.

Stubbornly weak economic growth and deflationary pressure on global trade from low-cost producers in Asia have kept U.S. inflation well under the Federal Reserve’s 2% target since April 2012. The benign threat of higher prices has emboldened the central bank to keep rates low and money cheap.

But there’s a growing disconnect between the Fed’s preferred measure of inflation and others.

#-ad_banner-#In fact, another measure of inflation points to price increases that are 70% higher than the rate the Fed is watching. Combine that with the fact that prices on one of the biggest downward factors on recent inflation are surging and the market may soon be reminded of what it’s like to have a ‘little’ inflation.

Is The Fed Looking In The Wrong Place?
Several regional Fed presidents have expressed concern about rising inflation and the need to raise interest rates. Philly Fed President Harker told Bloomberg in late September that rising energy prices have convinced him that we will see target inflation, “sooner rather than later,” and that he’s, “concerned about falling behind the curve,” with raising rates.

The fear is that historically low rates on Fed easing will spark inflation higher, something that is extremely difficult to control once it has started. With very little sales growth, most companies would be unable to pass on higher producer prices to customers and the slump in earnings could force us into another recession.

The problem is that the Fed might already be behind the inflation curve — because it’s looking at the wrong data.

Personal consumption expenditures (PCE), the measure of inflation tracked by the Fed, is one of the few price measures not above the 2% target. Core consumer prices (CPI) and a measure of consumer products with ‘sticky’ prices have both grown well above 2% over the last year.

Core consumer prices excluding volatile goods like food and energy have increased 2.3% over the last year and the group of ‘sticky’ consumer goods, which excludes other goods like travel and autos that change prices quickly, has shot up 2.7% over the year through August.

The important difference between the PCE and other inflation measures is that the PCE also measures prices of goods bought by businesses and the government, two sectors that have lagged consumer spending in the recovery.

The difference in inflation risks between the Fed’s preferred PCE and other measures is leading many analysts to worry that there is a lot more inflation in the system than most people appreciate. J.P. Morgan’s David Lebovitz points to a tight labor market, rising wages and the potential for much more inflation as, “the thing that most keeps me up at night.”

Low oil and gas prices have been key to low inflationary pressures but the recent agreement from OPEC to cut production may mean higher fuel prices ahead. The price of oil jumped more than 5% on the announcement and the five-year break-even rate, an indicator of market expectations for inflation, rose to the highest since July.

3 Winners When Inflation Heats Up
The standard go-to for inflation investments is gold, but holding the metal doesn’t pay until you sell it and gold miners have already seen huge gains this year on the rebound in prices. The NYSE ARCA Gold Miners Index is higher by 91% through the end of September.

One miner with potential upside is $12 billion Agnico Eagle Mines (NYSE: AEM) which recently boosted its quarterly dividend 25% to $0.10 per share. Net debt has been reduced for seven consecutive quarters and the company highlighted at a recent conference that its balance sheet strength will allow full funding of projects in its growth pipeline.

Even as the Fed raises rates, weakening the attraction for gold as an investment, strong demand in China and India should support prices. Rising prices in the face of rate increases could spook the market and bring investors back fast as an inflation hedge. AEM has one of the lowest geographic risks among gold miners with its relatively stable assets in Canada and Mexico.

FS Investment Corporation (NYSE: FSIC) is not a play on inflation but one on the Fed’s reaction and rising rates. The business development company (BDC) lends money on a floating-rate basis, so it will see revenue rise as rates increase. The $2.3 billion BDC is one of the better capitalized in its segment and pays a 9.4% dividend.

The company’s partnership with GSO Blackstone Group as a sub-advisor on credit lending adds another layer of review and advantages in each company’s specializations. It’s made FSIC one of the largest BDCs on total assets under management and a stronger portfolio of loans. Just 0.3% of its investments were in non-accrual as of August.

Investors should also look to consumer stocks that have stronger pricing power and can raise prices along with inflation. Constellation Brands (NYSE: STZ) has a strong alcohol brand portfolio with Corona, Pacifica and Clos du Bois. Politics aside, imports of Mexican beers are enjoying strong consumer sentiment and benefits Constellation with its focused portfolio.

The company has also tapped into the growing craft beer market with its $1 billion acquisition of Ballast Point. Revenue has more than doubled over the last three years and the company generated more than $500 million in free cash flow last year. I expect management to shift focus to profitability after the recent acquisitions and earnings could increase significantly.

Risks To Consider: Inflation abroad has been stubbornly weak and may act to limit price gains in the United States.

Action To Take: Position for a surprise uptick in inflation with stocks that can withstand higher pricing pressures and even outperform.

Editor’s Note: Worried about the election? The right thinks Democrats will sink this country’s economy. The left thinks Republicans will bring economic destruction. Truth is: They’re both right. It doesn’t matter who takes office in January, because history says the market could drop up to 58%. But these three investments are a shoo-in for double and triple-digit returns no matter what happens.