While the U.S. economy will soon enter recession, if it hasn’t already, inflation represents the long-term worry, says Robert Arnott, founder of Research Affiliates, an investment management firm.

The inflation rate has "an 80 percent chance of topping 5 percent within five years," he tells Smart Money. Consumer prices rose 1.7 percent in the year through June.

If a recession hasn’t already begun, a tax increase or government spending cuts – the "fiscal cliff" – would spark one, Arnott says. At that point, of course, the issue is deflation.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

But toward the end of the next downturn, inflation will surge, he says. The government’s exploding debt burden, which now totals $16 trillion, will pave the way.

So what should investors do to deal with the inflation? Arnott recommends emerging market stocks and junk bonds.

Many emerging markets combine buoyant economic growth with manageable government debt. And they provide protection from a falling dollar, he notes.

As for junk bonds, the virulent inflation Arnott expects would make it cheaper for heavily-leveraged companies to pay back their debt.

He says junk bonds have even more historic correlation with inflation than do Treasury Inflation Protected Securities (TIPS).

Most economists are more worried about the chances for recession now than for inflation down the road, even after Friday’s jobs report sent stocks soaring.

“The numbers are better but not good enough,” Brian Jones, an economist at Societe Generale, tells Bloomberg. “We’re stuck in a channel of lackluster growth.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.