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Inflation's rising toll on consumers

It's not just high energy bills. Even everyday items rose more than expected last month.

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The US economy is remarkably strong and buoyant, but high energy prices and rising interest rates are starting to take a toll on consumers.

• The pace of home-mortgage applications is down 15 percent, compared with this week a year ago, as "for sale" signs stay up longer in a slowing home market.

• Half of Americans have changed their vacation plans to stay closer to home, according to an Associated Press/Ipsos poll this month.

• Prices beyond the gas pump are also edging up. The "core" consumer price index (CPI), which excludes volatile food and energy costs, surprised analysts by jumping 0.3 percent last month, according to a government report Wednesday.

These pocketbook pressures don't signal a return of "stagflation" - the harsh blend of recession and rapid inflation that surfaced three decades ago.

But they do represent an economic climate less friendly to consumers - a gray zone where the pace of economic growth may be slowing even as the threat of inflation remains in the foreground.

"It's finally caught up" to average Americans, says economist Michael Cosgrove, who publishes The Econoclast newsletter in Dallas. "The cost of credit has gotten to a level where it's starting to impact people's decisions negatively."

This represents a reversal from just a few years ago, when gas was cheap, the interest on a fixed-rate mortgage was below 6 percent, and home prices hadn't yet soared to today's peaks.

The new head winds also include a weakening dollar, which eats away at Americans' spending power for imported goods or foreign travel.

In short, prices have gone up for several key items: credit, foreign currency, housing, and the fossil fuels that are a basic cost for virtually every home and business.

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