Milk, eggs, whatever: It's costing you more

WASHINGTON — New data from the Labor Department confirm what most middle-class Americans already know: Inflation is squeezing them.

Consumer prices increased by 4.1 percent last year, the highest rate since 1990, but the prices of basic essentials such as food, gasoline and health insurance climbed far more steeply, explaining why so many Americans are telling pollsters that the economy is their chief concern.

Residents of the Puget Sound region were hit even harder, as consumer prices increased 4.6 percent and continued a year-and-a-half trend of local inflation running ahead of the nation as a whole.

Coupled with a 4.2 percent spike in 2006, that means local consumer prices have soared almost 9 percent in two years.

Since mid-2006, the region's torrid housing market has kept consumer inflation well above the national average. But a local housing slowdown and accelerating inflation nationwide has caused the two rates to converge.

The Bureau of Labor Statistics reported Wednesday that the price of food and beverages increased 4.8 percent nationwide and 5 percent locally. At the same time, real weekly earnings failed to keep pace, increasing 0.9 percent nationally for the year. No wage numbers for the Puget Sound area were reported.

In the simplest of terms, a dollar earned bought less.

This partly explains why the economy so frustrates Americans, and has replaced the Iraq war as voters' No. 1 issue in presidential primaries and caucuses, according to exit polling.

"From a standpoint of the consumer, they react to [inflation] like a tax increase. They feel less wealthy, they feel pinched and they are looking for institutions or people to blame," said William Beach, an economist and the director of data analysis for the Heritage Foundation, a conservative policy-research organization.

The consumer price index collects price data on virtually every imaginable good or service in 87 urban areas. These data are culled, products are assigned numerical weight based on relative importance to consumer spending, then an average change of prices is determined.

The Labor Department issues monthly reports on national consumer inflation — every two months for the Puget Sound area — based on this data, detailing broad categories of consumer expenditures such as transportation, energy and medical care.

But these categories tell only part of the story of the middle-class squeeze.

Digging deeper into the data reveals, for example, that the price of bread increased 7.4 percent last year, almost twice the rate of inflation.

The price of eggs increased 29.2 percent in 2007, while the price of fresh whole milk was up 13.1 percent. Since July, when milk prices first soared, the price of fresh whole milk has increased by almost 23 percent.

"The kinds of things you purchase every day are going up" in price, said Gus Faucher, director of macroeconomics at forecaster Moody's Economy.com in West Chester, Pa. "People who are at the lower end of the income scale are going to feel that more."

Food prices aren't the only thing pinching the budget of working Americans.

The price of health insurance, another major political-campaign theme, increased by 10.1 percent. Medical inflation also continued to outpace the broader consumer inflation rate. The price of medical care nationally increased by 5.8 percent in 2007, and the price of medical-care services was up by 5.3 percent. Medical expenses increased 6.8 percent locally.

But consumers probably felt the energy-price squeeze most, certainly those in the Puget Sound region, where gasoline prices soared a whopping 20.5 percent and contributed to a 5.8 percent increase in transportation costs.

As a result, fuel replaced housing as the commodity responsible for most of the pinch in local consumers' prices.

The index of local housing inflation actually edged down in 2007, to 4.92 percent from 4.97 percent a year earlier. That index declined 0.2 percent in the last quarter, reflecting the slowdown in the Seattle-area housing market.

Nationally, gasoline prices increased 8.2 percent, the slowest rate of growth since 2002. Still, average prices for the last quarter of 2007 increased more than 30 percent.

Similarly, the price of fuel oil used for winter home heating increased 7.4 percent for all of 2007, but more than 27 percent in the last three months of the year.

On a brighter note, electricity prices increased by only 3.9 percent, slightly less than the broader consumer inflation rate. The price of utility-provided, piped-in natural gas — largely a domestically produced product, unlike oil — was down 1.4 percent nationwide and 9.2 percent locally.

For baby boomers sending their children to college, tuition and expenses increased by 6.2 percent last year, the slowest rate of growth since 2001 but still more than the inflation rate. The cost of attending a technical or trade school was up by 4 percent.

The cost of child care and nursery school increased 4.3 percent, slightly more than the inflation rate. The cost of feeding and caring for Fido or other family pets was up 3 percent.

Funeral expenses rose by 5 percent in 2007.

The inflation news would be worse if not for China. Prices for the types of consumer goods that are coming almost exclusively from China were down last year as in earlier years.

Apparel prices decreased 0.4 percent nationally, footwear prices were down 0.9 percent and the price of furniture and bedding — China- and Brazil-dominated products that once were the domain of the Carolinas — fell by 0.9 percent. Locally, clothing prices increased 1.8 percent and household products declined 2.9 percent.

The price of toys, which now come mostly from China, fell 4.7 percent last year. It's fallen every year since 1997.

Seattle Times business reporter Drew DeSilver contributed to this report.