From The Associated Press, 8/30/06:
http://www.msnbc.msn.com/id/14590264/

Rising costs begin to pinch consumers

'It's all the little things' as inflation speeds up, economy slows
down

CINCINNATI -

While prices at the gas pumps get a lot of attention, other increases
are pulling at Americans' pocketbooks from a variety of directions.

"We see it daily as far as everything we need for the kids; groceries,
the little one still in diapers; anything that has to do with the
house," said Mary Ann Ray, 32, a registered nurse and mother of two in
suburban Union Township just east of Cincinnati.

Besides spending $10 to $15 more to fill up her minivan than she did a
year or so ago, she ticks off a litany of other higher prices
squeezing the once-comfortable household budget of her and her
husband, the product development director for an educational software
company.

They include over-the-counter drugs, delivery pizzas, baby formula.

"It's all the little things," she said.

"What I see is that you get your typical raises for work, but it seems
like everything gets more expensive."

The ripple effect into the everyday economy as big companies try to
offset increased costs for energy, transportation and raw materials is
a creeping inflation that economists are watching, as the Federal
Reserve balances inflation concerns against a slowing economy.

While recent economic data indicated that inflation pressures are
easing, consumer surveys show inflation worries are contributing to
declining confidence about the economy.

And more price increases are coming.

In summer earnings reports, company after company has reported plans
to pass along some of their higher costs in pricing of some or most of
their products, from Energizer Holdings Inc.'s batteries to Eastman
Kodak Co. film; Whirlpool Corp. appliances to Clorox Co. household
cleaners; Anheuser-Busch Cos. Inc. beer to meals in some Buffalo Wild
Wings Inc. restaurants.

Small businesses affected

Some small businesspeople are feeling the ripples, too.

"My costs have gone up. Shipping has definitely gone up," said Toni
Sander, who sells gourmet foods and coffees, gift baskets and fine
wines at her store, The Wine List, in the northern Cincinnati suburb
of West Chester.

"Shipping bills are half the cost of some of the food orders."

The federal Labor Department reported a July core consumer inflation
increase of 0.2 percent, the lowest in five months.

But core inflation, which excludes energy and food, has risen by 2.7
percent over the past 12 months.

"They don't have inflation under control. You go out to Adams County
(a rural area east of Cincinnati) and ask anybody, 'Does it cost more
to live every day?' They'll tell you 'yes,'" said Paul Hackett, a
Cincinnati attorney who ran for Congress last year as a Democrat.

Jay McIntosh, Chicago-based Americas director for retail and consumer
products for Ernst & Young, said while the costs of gasoline, health
care costs, college tuition and other areas have been rising steadily
for years, some everyday items are climbing now, too.

"I think consumers are feeling it a little more day to day," McIntosh
said.

He said that large companies that have kept prices down by cutting
back internally or increasing productivity are facing increasing
pressure because of spiraling energy and commodity prices fueled
partly by growing consumption by China.

"It seems like right now, it's a little bit more difficult to keep
from raising prices," McIntosh said.

James Brock, a Miami University economics professor, said "the $64,000
question" is how much longer companies can keep rising costs from
spilling heavily into the consumer marketplace.

"This has been somewhat of a mystery so far, and something
(policymakers) are struggling with," Brock said.

"The question is when does that really start to show up at the retail
level and the cash register. Big companies like Procter & Gamble can
make modifications in the ways they do things to keep the lid on
prices. Honestly, I've been surprised that it hasn't shown up more
than it has."

Clayt Daley, chief financial officer of Procter & Gamble Co., said
during an Aug. 2 conference call that the consumer products company
has at times adjusted its spending in areas such as promotions while
monitoring what the competition does with prices.

"Competitors have had the same issues on costs ... we have had, I
think, pretty orderly price increases in most of our businesses around
the world during this upswing in commodity and energy prices," Daley
said.

P&G cited increased pulp and natural gas costs on Bounty paper towels
and Charmin toilet paper and high zinc costs for Duracell batteries in
raising prices around 6 percent on those products this year, for
example.

Executives of Kellogg Co., maker of popular cereals such as Rice
Krispies and frozen foods such as Eggo waffles, told analysts July 27
that the company is absorbing $180 million this year in additional
costs, mainly for energy, sugar and wheat.

While strong sales growth helped boost Kellogg's second-quarter profit
by 3 percent, the company said it needed to boost some prices.

"Obviously, as we see the impact of this particular cycle of cost
inflation, we believe in pricing and we are pricing against that to
help sustain our business model," said Jim Jenness, Kellogg's chairman
and chief executive.

While some price increases announced this summer, such as airline
fares, took effect immediately, shoppers will see others, such as
Kellogg's, going up on store price tags late this year or early next
year.

"They (consumers) will have to cut back on something," said Brock, the
economics professor.

"Then you raise the bigger of question of OK, if that happens, will
that create a slump in the economy?"

Sander is looking ahead, buying holiday items now to avoid price
increases during the season and ordering bigger quantities to get
shipping discounts.

The Rays have considered moving to reduce housing costs, including
rising property taxes, and may cut down on dining out or carryout
meals.

"Even things you think are cheap are going up," Mary Ann said.

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Harry