Consumers Spend More for the Good Life

Physician's Money Digest, February15 2004, Volume 11, Issue 3

The US Labor Department's ConsumerPrice Index revealed thatthe US inflation rate for the yearending May 2003 stood at only 2.5%,which seems like a good thing. In reality,however, the rising cost of services,together with a US dollar that recentlyfell to a 4-year low against the euro, iscrimping the lifestyles of those whoenjoy living well.

Cost of Ownership

Historically, consumer spending isdivided into two halves. The first half isthe actual retail purchase. According tothe US Labor Department, the cost of acomputer has declined 17.7% in the pastyear; the cost of a TV set is down 12.3%;mortgage rates are down 10.7%; andnew car prices are down 1.5%. Lookingat these numbers, you may be wonderingwhere the problem is.

BusinessWeek

BusinessWeek

According to a report,the problem rests with the maintenanceside of the equation, which makes up thebulk of household purchases. Sure, yousaved a lot on the new computer you purchasedfor your college-bound teenager,but the cost of college tuition has risen7.3%. You got a great deal on awidescreen TV, but cable services cost5.2% more. Mortgage rates are at all-timelows, but the average home price jumped6.9%, while the cost of heating that homeincreased 49.8%. The cost to insure yournew car went up close to 9% in the pastyear. notes that we feel theimpact of maintenance inflation muchmore because we pay most of these billson a monthly basis.

A year ago, the US dollar was valuedat 1.10 euros. Today, its value hasdropped more than 20%, to 87 cents.The result is that prices on some importedgoods have begun to rise, and theimpact has been widespread—fromhandbags to sofas to automobiles.

According to a Wall Street Journal report,prices of goods imported from theEuropean Union have climbed 6.5% inthe past year, compared with 2.4% for allother imports. Leather, jewelry, high-endclothes manufactured in Europe, andfancy Spanish olive oil have all seenprices rise.

Consumer Flexibility

Contrary to the US services industry,where your choice of cable service is limitedto the one provider in your area,there are alternatives to expensiveEuropean commodities. For example, areproduction of a Le Corbusier sofa,made in Italy, costs $3199 from EuroFurniture.com. However, a reproductionof a Le Corbusier sofa, made in China,costs $1399 from FutonsStore.com. A bottleof Moet Chandon Brut Imperial champagne,made in France, will cost you$48.99 on Wine.com, but a bottle of GregNorman Estates Sparkling champagne,made in Australia, will set you back only$19.49 on the same Web site.

There's no question, of course, thatquality can vary, but in some cases thatshouldn't be an issue. For example, 5.71ounces of Ile de Re Fleur de Sel (salt)made in France costs $12 online. However,48 ounces of Diamond CrystalKosher Salt runs about $2 in most supermarkets.And while the label might notlook as impressive at important socialgatherings, once dissolved, all salt tastesthe same.