(MONEY Magazine) – Remember when President Gerald Ford kicked off an anti-inflation campaign in 1974, complete with cute little WIN (Whip Inflation Now) buttons? Well, something similar is in the works today. But don't expect to see Razorback Bill Clinton sporting a button promising to whup inflation now. This time, all the whupping is coming from the Federal Reserve, where chairman Alan Greenspan is jacking up interest rates. And unfortunately for small investors, stock and bond prices are getting whupped along with inflation. It may seem strange for Greenspan to be bashing inflation when the consumer price index was up only 2.5% for the 12 months to March. Nonetheless, some forecasters, such as Ladenburg Thalmann's chief economist, H. Erich Heinemann, predict that inflation could climb to 5% or more by the end of 1996. Here's why they may be right: -- Important leading indicators of inflation are turning up. The Commodities ( Research Bureau Index, the Journal of Commerce Commodities Index and an index devised by Columbia University's Center for International Business Cycle Research have all been rising since November. -- The money supply is expanding rapidly. Inflation tends to follow growth in the U.S. money supply; when consumers have more to spend, they bid up the prices of the goods and services they want. And since bank reserves reflect the amount of money on deposit in U.S. banks, they serve as an excellent bellwether for the overall money supply, Heinemann explains. He figures that the steep increases in bank reserves between 1990 and 1993 foreshadow higher inflation within three years (see the chart). Moreover, the inflation upturn could start as early as this fall. That's a good reason to invest defensively now. The worst time for stocks is when inflation moves from low to moderate, says senior research analyst Andrew Engel of the Leuthold Group in Minneapolis. His studies show that over the past 121 years, when inflation was 2% or 3%, stock prices rose an average of 7.5% annually (not counting dividends). By contrast, in years when inflation was 4% to 7%, stocks fell 1.2%. You should therefore trim your holdings of stocks and equity mutual funds to as little as 30% of your total investments. When you do buy stocks, concentrate on those that will be able to ride out short-term turbulence in the U.S. economy. For example, the story on page 128 profiles 10 companies that earn a substantial share of their profits overseas. And the Wall Street Newsletter on page 62 spotlights four stocks that will benefit in the long run from the aging of the baby boom. As for bonds, until interest rates level off, stick with the shortest maturities you can get, because such bonds suffer the least when rates rise. There's nothing wrong in getting 5.1% on Treasury issues that mature in two or three years. When the time comes to roll them over, you're likely to get a much higher rate. And that will help ensure that inflation doesn't whup you.

CHART: NOT AVAILABLE CREDIT: Source: Heinemann Economic Research CAPTION: WHY INFLATION FEARS ARE BACK In the mid-1980s, the rate of growth in U.S. bank reserves more than doubled. In the ensuing three years, annual inflation climbed. By 1990, though, bank reserve growth had sagged to 1.5%. Three years later, inflation eased to 3.1%. By last year, reserve growth was back in double digits. If the pattern holds,inflation could top 5% by 1996.