Energy, food cost jumps boost consumer prices

WASHINGTON -- Big jumps in energy and food costs pushed consumer prices higher in April, but many other prices calmed down, easing fears about a broad outbreak of inflation. Wall Street rallied on the news.

From an economic and investor point of view, the Labor Department's latest snapshot of the nation's pricing climate suggested inflationary pressures were moderating and the Federal Reserve probably could stay the course of gradually rate increases to check inflation.

The consumer price index rose 0.5 percent in April, down slightly from a 0.6 percent rise in March, according to the report released Wednesday.

What really comforted economists and investors, though, was that "core" prices -- excluding volatile energy and food costs -- did not budge in April.

The flat reading on that gauge, closely tracked by the Fed, was a big improvement from March, when core inflation shot up 0.4 percent, the most in 2 1/2 years. It was the first month since November 2003 that core prices did not rise.

Falling prices for clothing, lodging and new cars helped restrain core inflation in April.

"Inflation pressures are slowing," said Anthony Chan, senior economist at JP Morgan Asset Management. "This tells us consumers have the potential to make progress and get some real purchasing power -- something they have been lacking."

Earnings rise

Weekly earnings of nonsupervisory workers, after adjusting for inflation, rose 0.2 percent in April, compared with declines of 0.3 percent in both February and March. Analysts consider that turnaround a good sign for consumer spending, an important ingredient in the economy's health.

On Wall Street, stocks surged on the latest inflation news. The Dow Jones industrials gained 132.57 points to close at 10,464.45.

To prevent inflation from becoming a problem, the Federal Reserve embarked on a campaign last June to tighten credit. Since then, it has boosted rates eight times, each in quarter-point increments, leaving the Fed's key interest rate at 3 percent. Before the Fed began to raise rates, this rate was at 1 percent, a 46-year low.

Economists expect the Fed to nudge rates up again by another quarter point at its June meeting and probably will continue that policy through much of this year. The inflation report greatly diminished prospects for more aggressive rate action, analysts said.

"The prospect of inflation galloping away from the Fed is clearly off the table," said Steve Stanley, chief economist at RBS Greenwich Capital.

At their May meeting, Fed policy-makers said, "Pressures on inflation have picked up in recent months and pricing power is more evident," meaning companies are finding it somewhat easier to raise prices to customers.

For the first four months of this year, consumer prices rose at an annual rate of 4.8 percent -- faster than the 3.3 percent rise registered for all of 2004. Core prices, meanwhile, have advanced at a 2.6 percent pace so far this year, compared with a 2.2 percent rise last year.

In April, big increases in energy and food costs were the main culprits behind the rise in the overall CPI.

Energy prices jumped by 4.5 percent last month, the biggest advance in two years. Gasoline prices went up by 6.4 percent, natural gas prices rose 5.6 percent and fuel oil costs increased 4.6 percent.

Oil prices skyrocketed into record territory in March and hit a new peak of $57.27 a barrel at the beginning of April. Prices have since retreated and now are below $48 a barrel.

The Energy Department reported Wednesday that retail prices for regular gasoline dropped 2.3 cents to a nationwide average $2.16 a gallon of regular this week, the fifth week in a row that prices have fallen. But they're still almost 15 cents a gallon higher than they were a year ago.

Economists are hopeful that the moderation in oil and gasoline prices -- if maintained -- might further ease inflation pressures.

Food prices, meanwhile, marched up 0.7 percent in April, compared with a 0.2 percent increase in March. Rising prices for vegetables, pork and dairy products last month swamped falling prices for poultry and fruits. Beef and veal prices were flat.

Elsewhere in the report: Airfares climbed 3.6 percent in April, the most since June 2001, as carriers boosted prices to cover higher fuel costs. Prices for medical care rose 0.2 percent and education costs increased 0.6 percent.

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On the Net:

CPI report: http://www.bls.gov/

Federal Reserve Board: http://www.federalreserve.gov