Rising Expenses Have Consumers Feeling Pinched

Bijou Mgbojikwe, 23, a second-year law student at George Washington University, said she tries not to think about rising tuition costs and her rising student loan debts. But every semester, she finds she has less money to cover living expenses after paying for classes, books and other costs.

And airfares between Washington and her home in Massachusetts are up.

So she's canceled her home Internet service, saving $50 a month. She rarely eats out anymore. Instead, she eats frozen meals made by her mother. "That's pretty much what I live off of the entire semester," she said.

Arlyne Foy of Fairfax city said she and her husband recently slammed the brakes on plans to buy a larger home in Loudoun County because of rising mortgage rates and the prospect of much higher commuting costs and utility bills.

Foy, 40, and her husband figured they could have afforded a bigger house, since their 3,000-square-foot townhome probably had grown about $200,000 in value since they bought it two years ago. But they didn't want to part with their very low 4.875 percent mortgage or her husband's 10-minute drive to work as a massage therapist and yoga instructor.

"The thing is, we're very comfortable," said Arlyne, a homemaker who cares for their 3-year-old daughter. "And we know we aren't going to find an interest rate as excellent as the one we have now."

Rebeccah Ballo, 26, an urban planner, and her boyfriend, Frankie Ali of Alexandria, decided to buy a townhouse when they found out their rent would be rising. The change required Ali, a Web designer, to give up his beloved Mitsubishi Eclipse in favor of Ballo's more fuel-efficient Volkswagen Jetta. That saved $500 in car payments and insurance. Their new location will allow them to bike to work and save money on gas.

Many people wonder how the Fed can say inflation is largely contained when their day-to-day costs seem to be rising. The explanation lies in the difference between an economist's technical definition of price inflation and an individual consumer's sense of the overall cost of living.

Economists view inflation as the rate of increase in the general level of prices for goods and services. That's the net result after combining both rising and falling prices. And it doesn't include income taxes or the interest consumers pay on what they borrow.

Consumers, though, tend to notice rising prices for things they buy frequently -- such as gasoline and food -- more than falling prices, particularly for items they don't buy as often, such as personal computers and phone service. And many consumers have boosted their household expenses over time by tacking on additional monthly bills that didn't exist decades ago, for cellphones, cable television, DVD rentals, sports clubs and Internet access.

Inflation did pick up last month, according to the Labor Department's consumer price index, which rose 0.4 percent in March after edging up just 0.1 percent in February. Much of the recent increases have reflected surging energy prices, which rose 17.3 percent in the past 12 months. But prices rose as well for food, housing, medical care and education, the Labor Department reported.

The Fed seeks to keep inflation under control and unemployment low by using interest rates to guide the economy's pace of expansion. When the economy slumps, the Fed lowers rates, making it cheaper for consumers and businesses to borrow and spend, spurring economic growth and hiring. When the economy grows too rapidly, the Fed lifts rates to achieve the opposite effect.