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Family's Plight Shows Inflation's Bite

Americans are getting less but paying more. Education and heating are just two problems.

November 20, 2005|Gail MarksJarvis | Chicago Tribune Staff Writer

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 last six months, as Ben has 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 Chicago on more than $100,000 a year. But rising prices are gnawing at their 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% on a $15 purchase.

When she helped her 22-year-old daughter select laundry detergent, she wondered when the price had shot up $2.

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. Now he's paying as much as he used to, but for less coverage.

Getting less for more money is what inflation is about. And the recently reported 1.2% monthly increase in inflation was a confirmation of what consumers like the Castronovos have felt for months: a creeping increase in prices that empties wallets quicker 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, a 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 the consumer price index suggests, Bernstein says, because of the astronomical rise in prices on a few expenditures that people need to make -- such as healthcare, housing and education.

Consider the Castronovos. The couple sat down recently to tally up 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 public university tuition to rise more than 40% over four years. Nor had they expected the cost of a four-year college education to total about $100,000 for each child.

They didn't expect interest rates on adjustable-rate student loans to rise as sharply as they have lately either -- helping to nudge $600 monthly payments to $800.

"It made me gulp," Cindee said.

During the last five years, paying for a four-year education at a public university has climbed 44%, much more than the cost of inflation in the general economy, says economist Susan Baum, a College Board analyst.

Even if the rise in college costs is adjusted to reflect the overall inflation rate, the average price has risen 28%.

When the Castronovos' daughter, Gina, started at the University of Wisconsin 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. Cindee complained to the university about the sharp increase, to no avail; colleges were faced with cutbacks in state funding after the 2001 recession.

The legacy has been passed on not only to the Castronovos, but 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 the Castronovos' age. At 47 and 49, the couple is well aware that they need to be saving 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.

Meanwhile, she and Ben already 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. Recently they cut a weekday newspaper subscription and an 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 onto 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% for wine, 24.3% for beer and 30.1% for distilled spirits, according to the Bureau of Labor Statistics.

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