Creeping inflation takes a toll on family budget

Your Money

November 27, 2005|By GAIL MARKSJARVIS | GAIL MARKSJARVIS,CHICAGO TRIBUNE

CHICAGO -- Don't tell Cindee and Ben Castronovo that inflation is fairly tame.

"I can't think of anything that hasn't gone up," Cindee said. She's felt the impact of inflation in no uncertain terms several times in the past six months, as Ben has called and warned her not to use the debit card until they receive their next paychecks.

This is a relatively new experience for both of them. As middle managers in their late 40s, they are used to living comfortably in northwest Chicago on more than $100,000 a year. But rising prices are gnawing at their household budget, just as they are for most Americans.

When Cindee lugged a 20-pound bag of cat food out of a store recently, she felt the weight of inflation. "What's up with that?" she asked herself as she pondered how the price had jumped 40 percent on a $15 purchase.

When she helped her 22- year-old daughter select laundry detergent, she wondered when the price had shot up $2. And when she fills her gas tank, the fumes of inflation are pungent.

Then, there's the nagging price of car insurance: It has been surging even though their driving records haven't changed. To control the premiums, Ben switched to only liability insurance and raised the deductible to $1,000, but he is still paying as much as he used to, and getting less coverage.

Bite of inflation

Getting less for a higher price is what inflation is about. And the recently reported 1.2 percent monthly increase in prices was a confirmation of what consumers like the Castronovos have been feeling for months: a creeping increase in prices that empties wallets faster than a year ago while their take-home pay remains relatively unchanged.

"What matters to people is not just how fast prices are rising, but how fast relative to what they are earning," said economist Jared Bernstein of the Economic Policy Institute think tank. "You go to the market and fill a basket up with food and realize your paycheck isn't going as far."

The pinch for consumers is worse than consumer price index numbers suggest, Bernstein says, because of the astronomical rise in prices on a few expenditures that people need to make - such as health care, housing and education.

Consider the Castronovos. The couple sat down recently to tally accumulated debt on college loans for their children: Over the next 10 years, they will be paying off more than $110,000 for their daughter who recently graduated from the University of Wisconsin-Madison and a son who is in his second year at Chicago's Columbia College.

The Castronovos never thought paying for college would be easy, but they hadn't expected a more than 40 percent rise in tuition at a public university over four years, or that the cost of a four-year college education would total about $100,000 for each child.

Nor did they expect interest rates on the adjustable-rate student loans to rise as sharply as they have lately - helping to nudge $600 monthly payments to $800.

"It made me gulp," Cindee said.

During the past five years, paying for a four-year education at a public university has climbed 44 percent, much more than the rate of inflation in the general economy, says economist Susan Baum, a College Board analyst. Even if you adjust the rise of college costs to reflect the overall inflation rate, the average cost of college has risen 28 percent.

When the Castronovos' daughter, Gina, started at the University of Wisconsin-Madison about five years ago, the tuition was $14,188. Four years later, the family had to pay $19,866, or about $23,000 including room, board and books.

The legacy has been passed not only to the Castronovos, but also to Gina, who took out $17,500 in federal student loans.

College loans are becoming more of a burden for people in their 20s and 30s, taking up so much of their first-job paychecks that a study by public policy research group Demos has labeled them "Generation Broke."

Such college costs also take on significant meaning for people Cindee's and Ben's ages. At 47 and 49, respectively, they are aware that they need to be saving in earnest for retirement. But paying off such loans is going to make it tougher to sock away what they will need. Cindee figures she will make up for lost savings by working part time, if she can, after retirement age.

Making changes

Meanwhile, she and Ben have made changes to try to free up more money. A few years ago, they stopped having a $60 housecleaner come to their home twice a month, and recently they have cut out a weekday newspaper subscription and Internet provider. If they go to a movie, they choose a matinee, and if they go out to dinner, Cindee doesn't order a drink.

"A margarita really adds on to the bill," she said.

It's not just her imagination. Since December 1997, the cost of ordering a drink away from home has climbed substantially - 34.5 percent for wine, 24.3 percent for beer and 30.1 percent for distilled spirits, according to the Bureau of Labor Statistics.

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