Higher food, fuel prices bring out inner Scrooge

NEW YORK - The "latte effect" of the go-go years had consumers spending $4 a day on coffee. Now the nation's economic downturn is forcing them to rethink such habits.

As housing prices drop, the job market tightens, and inflation squeezes budgets, middle-class Americans are taking fresh stock of their spending in search of ways to save a nickel or a dime. The result: People are giving up a variety of small financial vices.

For Michelle Hovis, that means refilling her husband's used soda container from a 2-liter bottle she buys on sale for 98 cents. She ended his daily habit of buying a 20-ounce bottle when the price crept up to $1.39.

"The price of gas, milk, eggs - everything you can't control - is going up. So you need to watch the things you can control," said Hovis, 31, from Iron Station, N.C.

While the idea that little costs add up is not new, it comes with added sticker shock as food and gasoline prices sprint along at a record pace. As a result, people are avoiding items once thought necessary - like frappuccinos.

Milk, coffee, fresh fruit and bread were among the items that got more expensive by an average of 0.9 percent in April, the largest one-month increase since January 1990. Gasoline prices were up nearly 21 percent compared with a year ago.

Workers' wages, meanwhile, dropped for the seventh consecutive month.

All this means fewer lattes.

Last month, Starbucks Corp. blamed rising food and gasoline prices as it reported sales at U.S. stores open at least a year had dropped - indicating some consumers may finally be summoning their inner Scrooges.

Coca-Cola Enterprises Inc. also said last month that weak U.S. sales - especially on some 20-ounce beverages - would likely cause its earnings to drop.

Consider the jaw-dropping math behind "the latte effect" in today's economy.

A $1.50 bottle of soda for each weekday of the year, for example, would add up to about $390. Now at $2 in some parts of the country, the habit comes with an annual price tag of $520. Over five years, that is $2,600.

"Unfortunately, pain is required for change. The pain of the uncertain economy, of gas prices and food prices, is becoming an important reality check," said Sheryl Garrett, a financial planner in Shawnee Mission, Kan.

For Natasha Patel of New York, the penny pinching means no more cab rides home on weekends. Instead, she relies on her monthly subway pass, saving about $20 in taxi fares a week.

She also canceled her cable and Internet package, pocketing another $120 a month ($1,440 over a year, for anyone keeping track).

"It makes you really hone in on the things you really want to do," said Patel, a 34-year-old academic counselor at Columbia University.