7 Products That Are Getting More Expensive

  • The Great Inflation Scare of 2011

    For months, many economists, politicians and consumers around the country have worried that the U.S. economy would soon be ravaged by inflation, significantly driving up costs on everyday products and hurting the country’s progress as it recovers from the recession. Despite these concerns, the inflation rate has remained strikingly low, at least so far. The average price of all consumer products increased by 2.1% between February 2010 and February of this year, according to the most recent Consumer Price Index (CPI) data from the Bureau of Labor Statistics, which tracks fluctuations in the cost of goods from month to month. This represents one of the lowest annual inflation rates of the previous decade. But even this statistic won’t provide much comfort to consumers who have likely noticed prices tick up at their local grocery store and gas station. Photo Credit: purpleslog
    Sticker Shock
  • Sticker Shock

    Even though the price increase for consumer products has been modest on average, much of the increase has been driven by increases in the cost of food and gasoline. When these two products are taken out of the equation, the rate of inflation drops to just 1.1%, according to the BLS data. Unfortunately, no consumer can really eliminate food and gas from his personal spending, and some consumers are beginning to feel increasingly strapped for cash as a result. “Clearly we are beginning to see inflation pressures increase on a variety of products, but specifically on food and energy,” said Bernard Baumohl, chief global economist at the Economic Outlook Group and author of The Secrets of Economic Indicators. “The thing to remember though is that these price increases have not been matched by an increase in wages, so we’re seeing real incomes get squeezed as a result.” As Baumohl points out, the increase in food and gas prices has already begun to impact other sectors, potentially driving up costs on a wide range of goods and services going forward, but this isn’t the only factor. MainStreet analyzed the most recent CPI data to find the products that will be more expensive this year than in 2010, and spoke with several economists to find out the stories behind these price increases. Photo Credit: Andrea_44
    Gasoline
  • Gasoline

    If high gas prices have made you panic at the pump in recent months, you’re not alone. Gasoline prices skyrocketed between August 2010 and February of this year, according to CPI data, increasing by 55% on average, regardless of whether you purchase regular or premium gas for your car. Household energy prices have increased by similarly high rates, with fuel oil for the home increasing by 27% during this six month period. Energy prices had fluctuated heavily throughout the recession, but according to Jonathan Church, an economist with the Bureau of Labor Statistics, gas price increases have been accelerating roughly since the end of last year. In fact, just between December and February, prices shot up by more than 60%. While there are several factors that contribute to the increase in oil prices over the long term – ranging from supply issues to a growing demand for oil in developing countries – much of the price increase in recent months can be attributed to the political protests in the Middle East, which began in mid-January and continue to spread across the region that supplies much of the world’s oil. “It’s not that there’s been a large enough reduction in the supply of oil [to raise prices] because of the problems in the Middle East, but rather the expectation that there could be,” said Joel Naroff, president of Naroff Economic Advisors. The fact that prices are being driven by expectations has made it possible for gas costs to increase much more quickly than dwindling oil supplies alone would have caused, according to Naroff. By the same token, he speculates that gas prices could decrease just as quickly once the situation on the ground is perceived to be improving. “The good thing about this is if the trouble in the Middle East doesn’t spread and escalate in the next three to six months, we could see prices come down quite a bit,” Naroff said. For the time being though, prices have only continued to go up as the average cost of gas around the country approaches $4 a gallon. Photo Credit: brownpau
    Bread, Fruits and Coffee
  • Bread, Fruits and Coffee

    It’s getting steadily more expensive to eat a well-balanced meal as well. Bread costs were up 7.9% for the six months ending in February, while fresh fruits were up nearly 12% during this period and coffee was up 11%, according to BLS data. In part, the higher prices of these items can be attributed to problems on the supply side, as economists point to weather problems in Africa and Latin America that limited the production of coffee beans and fruits like bananas, thereby driving up costs. But the rising price of gas has likely played a big role in this too, as food vendors and producers must pay more to deliver their products. “The biggest factor behind this could very well be the transportation cost,” Baumohl said. “When delivery companies have to charge more for fuel, that cost ultimately gets passed on to the consumers.” Photo Credit: Polishfoodinfo.com
    Airfare
  • Airfare

    The rise in fuel costs has also had ripple effects on the airline industry, as major carriers like United, Delta and American Airlines added surcharges of about $20 onto roundtrip airfare costs in February to make up for increasing oil prices. Overall, the CPI data shows that airfare prices increased by 22% between August 2010 and February 2011, outpacing price increases for most other consumer products. “There’s been quite a jump this year,” said Church, the BLS economist, noting that airfare had increased at a little more than half that rate during the same period one year prior, and had actually decreased between August 2008 and February 2009. While oil prices have been a big contributor to this steep increase, airlines have also taken deliberate steps of their own to raise prices on consumers. For starters, many of the airlines continue to introduce new (and often ludicrous) fees to raise revenues, which may have been a driving factor in the average increase in airfare. But the airlines also rely on another more subtle method to raise prices. “They have dramatically reduced the capacity [of their flights], while the demand for seats has increased,” Baumohl said, giving the airlines pricing power to raise costs on consumers. Photo Credit: xlibber
    Medical Care
  • Medical Care

    As if getting sick isn’t bad enough, the price of treatment is only getting more expensive. Medication costs increased by just more than 4% between August 2010 and February of this year, with prescription drugs accounting for most of that increase. Meanwhile, the cost of getting treated at a hospital increased by 7%. To some extent, increases in medical costs are inevitable, as the CPI data shows costs generally increase from year to year in the sector, but according to the economists, at least some of the recent price increase could be due to the health care reform package that is set to take effect in 2014, as well as concerns that the current Congress may make cuts to Medicare in order to balance the budget. “We may be experiencing some impact from additional costs that are being pushed through before the health care bill takes effect,” Naroff said. Photo Credit: rkimpeljr
    College Tuition and Textbooks
  • College Tuition and Textbooks

    Higher education costs have been on the rise as well, with the price of college tuition increasing by 4.6% between August 2010 and February of this year. And like most of the bad things happening lately, experts say this price increase can be attributed to the recession. “The financial crisis has really hurt the endowments of many of these colleges. The schools have seen their own wealth drop off, and they are not getting as much in financial assistance from the federal government. As a result, they have little choice but to raise tuition,” Baumohl said. To make matters worse, the price of college textbooks increased by 6.7% during this period, making it even pricier to attend university. Some of this, Baumohl says, is due to the increasing cost of producing textbooks, but he also cites a more optimistic reason: Textbooks are getting better. Textbooks today are bigger, packed with more information and come with more features like interactive CDs to help students learn, so the costs are going up accordingly. Photo Credit: bensonkua
    Jewelry
  • Jewelry

    Jewelry is never that cheap to begin with, but in the six months ending in February, jewelry prices shot up by 12 and no, that wasn’t because of Valentine’s Day. “The rise in jewelry prices reflects the extraordinary increase in the price of gold and silver as being traded in the markets,” Baumohl said. Gold in particular has been on a tear in recent months, seemingly hitting new record prices every other week. Diamonds too have become more valuable as some are investing in precious metals. “Investors may be getting into the business of buying commodities and precious metals now primarily because there is a genuine concern about paper money holding its value at a time of inflation and easy money,” Baumohl said. There has also been a striking rebound in the luxury market as a whole, as Americans at all income levels have decided to splurge a bit more after having been forced to pinch pennies during the recession years. This increase in demand, Baumohl notes, is likely adding to retailers’ ability to raise prices. http://www.mainstreet.com/article/smart-spending/it-ok-spend-again Photo Credit: AMagill
    Newspapers and Magazines
  • Newspapers and Magazines

    Despite all the problems in the publishing industry - or perhaps because of them - the price of periodicals has been inching up lately. The average cost of newspapers and magazines increased by 1.2% between August 2010 and February of this year, after having decreased consistently throughout most of 2010. As Baumohl points out, the cost of lumber hasn’t really gone up too much in recent months, so it’s doubtful that the price increase is being motivated by production costs. And much as I hate to admit it (being part of the media), demand for traditional publications likely hasn’t increased much either. Instead, Baumohl sees two factors at play: the cost of transporting publications to subscribers and newsstands, which has increased because of gas prices, and a decline in advertising revenue, which has forced publishers to try to compensate by raising subscription costs. Photo Credit: Billingham
    Products That Are Getting Cheaper
  • Products That Are Getting Cheaper

    Fortunately, not everything is going up in price this year. MainStreet recently unearthed several everyday items, ranging from home furniture to electronics, that are actually cheaper now than they were in 2010. Check out the complete list here. Photo Credit: bryansblog
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