Tighter times bring end to luxuries of 'latte effect'

By Candice Choi  |   2008-6-28  |     NEWSPAPER EDITION

1/2   Lilly Hovis, 3, gets some help from her mother Michelle, as they cut lunch meat into shapes for a picnic at their home in Iron Station, North Carolina, on Tuesday. As inflation squeezes budgets, middle-class Americans are taking fresh stock of their everyday habits in search of ways to curb spending.

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THE "latte effect" of the go-go years had Americans spending US$4 a day on coffee. Now the downturn is forcing them to rethink the wisdom of such habits.

As 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 is that 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 tweaked his daily habit of buying a 20-ounce bottle when the price crept up to US$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, a 31-year-old stay-at-home mom from Iron Station, North Carolina.

While the idea that little costs add up is nothing new, it comes with added sticker shock as food and gasoline prices sprint along at a record pace. The result is that people are finally putting the brakes on vices once considered 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 to a year ago.

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

The result is fewer latte runs. Literally.

Last month, Starbucks Corp blamed rising food and gas prices when it reported a 28-percent drop in its second-quarter earnings, and said sales at United States stores open at least a year had dropped, indicating that some consumers may finally be restraining their spending.

Coca-Cola Enterprises Inc also said last month that the weak US sales - especially on some 20-ounce beverages - will be likely to cause its earnings to tumble.