The ups, downs of inflation: 10 areas

Some prices have soared while others actually have dropped

On The Money

Your Money

May 23, 2004|By Lorene Yue

Your view on whether inflation is on the rise is most likely influenced by what you're buying. But there is no reason to worry about rampant price increases - at least for now.

You're paying only 0.2 percent more for goods and services than you were in March, according to the U.S. Labor Department's April Consumer Price Index. And the Federal Reserve said earlier this month that it saw no need to fret about long-term inflation.

Naysayers, however, believe there is reason for concern.

"We believe there is a disconnect between what you read in the headlines after the [Consumer Price Index] is released and what consumers feel in their pocketbooks," said Bill Davison, managing director for Hartford Investment Management in Hartford, Conn.

Where is inflation? It depends on where you look.

Six places you will find inflation:

1. Health care

Medical costs have risen 23 percent in the past five years thanks to higher prices for such things as hospital stays and prescription drugs. What's behind those increases? Liability insurance premiums, higher wages and demand for service. And it's expected to get worse as the largest age group gets older.

2. Tuition

The average tuition at a four-year public university rose 14.1 percent for the 2003-04 academic year, while the cost for a four-year private college rose 6 percent, according to the College Board. In the past five years, tuition costs are up 35 percent as state governments continue to cut financing.

3. Tickets

You're shelling out about 37 percent more for entertainment-related tickets than you were five years ago. It will set you back nearly $55 to buy one adult ticket to Disney World. In 1999, you could see the Magic Kingdom for $42. Movie ticket prices are up 19 percent since 1999, according to the Motion Picture Association of America, with some theaters charging more than $10 for a flick.

4. Food and beverage

"For intangible items, there is a lot of labor content involved," Davison said. "They can't be sent out, assembled and brought back in."

That's why you are paying 22 percent more for bacon and 14 percent more for beer than you were five years ago.

5. Utilities

If you're a cable subscriber, it only takes a look at your monthly bill to see that prices have gone up. In the past five years, the cost of watching TV without tin foil bunny ears has risen 25 percent.

6. Energy

"Energy prices are the most obvious, which you see every time you fill up at the pump," said Vincent Boberski, chief economist for RBC Dain Rauscher in Chicago. With warnings of gas prices topping $3 a gallon this summer, the days of $1 gas are a distant memory.

Four areas where you won't see inflation:

1. Clothing

Much to the chagrin of retailers trying to squeeze out fatter profit margins, clothing prices have softened sharply since 1998. "There's competition," said Rosalind Wells, chief economist for the National Retail Federation in Washington. "There are goods coming from abroad; there are promotions and markdowns - it's all of that."

2. Consumer electronics

Technological advances in the past five years have driven down TV prices by more than 42 percent and computers by 77 percent. For $500, you can buy a DVD player with more bells and whistles than the same-priced player that sold five years ago. That stripped-down model is now likely to cost less than $100.

3. Furniture

You can buy a bit more couch for your money. Prices for furniture are down more than 6 percent in the past five years thanks to manufacturing efficiencies.

4. Autos

Better building processes have also held the line on car costs. You can get a much better car these days for just a few thousand more than you were paying a few years ago. Good thing, since the savings will help offset the cost of filling up.

Lorene Yue is a Your Money staff writer.

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