Inflation is one of those economic hazards that everyone knows about, but few know how to combat when it decides to rear its ugly head. The base definition of inflation is a cost increase in products and services tied to our daily way of life. Now, inflation isn't such a bad thing if incomes rise in concert with the increased costs, but since this rarely happens, inflation often signals diminished purchasing power for consumers. There is one example nearly all of us that depend on automobiles are familiar with: The cost of gas.

When we head to the local service station to put gasoline in our cars, that gas has been refined from crude oil, perhaps the world's most traded and most volatile commodity. Gas prices historically move in unison with crude prices. If you paid $2.50 a gallon last week, but crude moved up a few bucks a barrel in the interim, you may pay $2.75 a gallon this week. That's a 10% increase and chances are you didn't get a 10% raise to absorb that price hike, hence the rub with inflation.

Fortunately, there are ways for investors not only to protect their portfolios from inflation, but also to profit when inflation comes out to play. Let's take a look at a few of the choices.

ETFs: The Inflation Protection Battleground

There are many clear advantages to investing in commodities Exchange Traded Funds (ETFs), particularly as a way of adding this asset class to your portfolio without the risk of directly buying futures contracts. Well, commodity-based ETFs are also an excellent way to profit from inflation. We already highlighted how rising oil prices are a sign of inflation and there is an ETF that can help you take advantage of higher crude prices. The U.S. Oil Fund (USO), which invests in crude futures and derivatives contracts, trades like a stock and is an ideal way for investors to profit from a surge in crude prices without having to buy stock in a oil company. Oil stocks typically lag behind crude's price fluctuations and that can make them frustrating investments.

Of course, we cannot forget gold. The yellow metal has been the inflation fighter of choice for tons of investment experts for decades. The thought is that when inflation is on the rise, stocks and other assets falter, and this increases demand for gold. There's an ETF to help you profit here, too. The SPDR Gold Shares (GLD) ETF actually holds physical gold bullion and is one of the largest owners of gold in the world. Investing in gold can be expensive, not to mention risky, if you're playing the futures market, so GLD is an avenue investors should consider when looking for inflation protection. Remember that gold is all about supply and demand, so if inflation is rising and there are questions about the global supply of gold, gold prices will almost certainly soar.

Bond ETFs: A Worthwhile Alternative

A lot of investors think that investing in bonds is boring. Bonds rarely possess the volatility of stocks or commodities, but they should be part of any portfolio that is seeking to be well-balanced. Of course, bonds are great low-risk ways of generating income, which is why many financial advisors recommend increased bond holdings for retirees and older investors.

In the form of Treasury Inflation-Protected Securities (TIPS), the bond world offers investors a solid, low-risk way to protect their portfolios from the spectre of inflation. There are a pair of corresponding ETFs to give investors exposure to TIPS. The iShares Barclays TIPS Bond ETF and the SPDR Barclays Capital ETF are just two of the TIPS ETFs bond investors may want to look at.

The interest paid to the TIPS investor rises and falls alongside inflation, so keep that in mind prior to investing in these securities. In other words, if inflation is declining and you own TIPS, you'll receive lower interest payments. Remember that if you hold a TIPS ETF up to expiration, the yield you will receive will be adjusted for inflation and this can have adverse impact on your overall returns.

Don't Fall Victim To Inflation

In the past, there weren't a lot of choices available to retail investors to fight inflation. Inflation was kind of a grin-and-bear-it scenario, but as ETFs have proliferated, so have the low-risk alternatives for investors seeking ways to beat inflation. There are an array of other ETFs that we haven't discussed that can also be used as inflation fighters and to help properly diversify your portfolio. If bonds aren't your thing, take a look at some of the other metals ETFs and don't forget about the agriculture-based ETFs that focus on soft commodities like corn, soybeans and grains.

Inflation stinks. That's an indisputable fact, but the tools are out there to help investors not only find a little protection from the inflation storm, but to profit from it as well.