Who says inflation is tame? -- Page 2

Gary Claxton, vice president at Kaiser, says medical premiums rise for several reasons, among them the higher price of health care products, more expensive therapies replacing cheaper, less-effective therapies and an increase in the number of services people are using.

"Last year a new stent was introduced that is used in coronary bypass. This stent has medicine on it and it has become the standard of care. It costs three times as much as the stent it replaced.

"Another example is anesthesia. It's a lot easier on the body these days. Because of that, people who may have been considered too frail to undergo a procedure in the past are now having those procedures done."

Claxton says periods of rapid escalation in the cost of health care are often followed by moderation, but, he adds, don't expect to see health care increases come down to 2 percent or 3 percent.

Inflation of higher education and vacation
Anyone with a kid or two in college is likely suffering from a severe case of sticker shock. The College Board, an association of educational institutions, says the average tuition for a four-year public college rose 14 percent in the 2003-2004 calendar years. Ten schools in that category are increasing their tuition by a minimum of 37.1 percent. If you're footing the bill for UCLA, you're seeing a 43.1 percent increase in tuition, which means you'll have to come up with an additional $5,298.

Even vacation costs are increasing. Head for Walt Disney World and, whether you go by plane or car, you'll pay more to get there thanks to rocketing fuel prices. When you arrive at the magical land of Mickey and Minnie you'll find that daily admission rose in 2004 by 5 percent to $54.75 plus tax for adults, $43.75 plus tax for kids -- the biggest hike in 15 years.

A problem, of course, is that people aren't seeing whopping increases in their paychecks, and those who are overextended on credit could find themselves struggling to meet minimum payments if interest rates rise as a result of inflation. That could lead to a steeper rise in personal bankruptcy filings, which totaled 1,625,208 in 2003, a 5.6 percent increase over the previous year, according to the American Bankruptcy Institute.

Jack Gillis, of the Consumer Federation of America, says the extraordinarily high cost of living is clearly making it more difficult to make ends meet.

"Not for extraneous purposes, but for everyday living expenses -- and for many people an offer of credit can be very attractive. People who are making minimum payments on an adjustable-rate credit card are going to be in a very difficult position should those rates go up. And unless they start paying down their credit cards, it's likely we'll see an increase in personal bankruptcies.

"The economic indicators that go into the inflation rate may not reflect all of the price increases that the average middle American sees. Combine this with a stabilization of income and your wallet gets thinner and thinner."

If you're financially strapped, Gillis' advice to reduce credit card debt is probably one of the best things you can follow to lessen the impact of high interest rates that may be looming down the road. First pay down your cards that have the highest interest rate. Be cautious about using a home equity loan to pay off credit card debt. Too often people pay off the cards and then run them back up. Then they're deeper in debt and have burned off the equity in their home -- a potentially disastrous situation.

A better solution than using home equity to pay off credit cards would be to refinance your mortgage and car loan while rates are still low. The cash that's freed up can be used toward credit card debt, and you can let the equity in your home grow.