Inflation Pressures Ease Despite Jump in Some Costs
By JENNIFER BAYOT
Consumer prices climbed 0.5 percent in April, the government reported today, but all of the overall increase came from the volatile food and energy sectors, allaying fears of across-the-board inflation.
The Labor Department said that excluding food and energy costs, which can vary widely from month to month, the core rate of the Consumer Price Index was unchanged for the first time since November 2003.
The stability of the core rate provided relief for Wall Street, which was worried that if the rise in consumer prices over the previous two months continued, the Federal Reserve might raise short-term interest rates at a faster pace to try to curb spending and dampen price increases.
"Last month there was the fear that inflation was beginning to accelerate," said Joshua Shapiro, chief economist at MFR Inc., an economic research firm in New York. "Then you get today's report, which kind of says, 'never mind.' "
In March, the overall Consumer Price Index surged 0.6 percent, while the core rate rose 0.4 percent. For April, economists surveyed by Bloomberg News had forecast an overall increase of 0.4 percent and a 0.2 percent increase in the core rate.
The bond market rallied after the report was released, pushing the yield down on the 10-year Treasury note to near 4 percent. Stocks also rose.
"Over all, a relief," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note. "But the data don't get the Fed off the hook. Rates are being raised to combat future inflation via the tightening labor market, not today's C.P.I."
Although the core rate of the Consumer Price Index remained stable, consumers are paying far more for some necessities. Food prices spiked in April by an unusual 0.7 percent, as prices of fruits and vegetables climbed.
Meanwhile, the cost of heat and fuel rose 4.5 percent in April, the steepest increase in two years and 17.1 percent higher than 12 months ago. Airlines, paying more for fuel, in turn raised air fares sharply, by 3.6 percent. But prices for crude oil have recently fallen to their lowest level in three months, suggesting some relief to come.
Compared with April of last year, transportation prices have risen 7 percent, including a 1.8 percent jump last month, and the cost of education has increased 6.3 percent, including a 0.6 percent rise last month.
But price increases eased last month to 0.2 percent in medical care, the most modest gain since February 2003, and 0.3 percent in housing, where owner-equivalent rents rose only 0.1 percent.
The costs of clothing and communications services, meanwhile, have declined over the last year, by 0.5 percent and 2.3 percent, respectively, from last year.
"We continue to believe that the most likely path for core inflation is only a very mild upward drift from here," David Greenlaw, an economist at Morgan Stanley, wrote in a research bulletin to clients.
The relative steadiness in consumer prices accompanies recent reports of steady growth in the economy, which had seemed to be slowing in March. Employers hired 274,000 people in April, 100,000 more than expected, while retail sales rebounded. Even after accounting for the unusual timing of Easter, which occurred in March rather than April, the data suggest the economy's growth remains on track.
Still, the government reported on Tuesday that the Producer Price Index, reflecting prices charged by wholesalers, rose slightly more than expected. That increase could put pressure on companies to raise the prices they charge to consumers. |
