Consumer Prices Rise on Increasing Food, Energy Costs

Consumer prices jumped again last month, primarily reflecting sharp increases in food and energy costs, the government reported yesterday.

But prices for items other than food and energy were flat in April, and oil and gas prices have fallen since then, the Labor Department said, boosting hopes in financial markets that the recent inflation flare-up may be fading.

"Overall inflation is under control and should moderate as we move through the summer," said Peter Morici, a professor at the Smith School of Business at the University of Maryland.

The department's consumer price index, a widely followed inflation gauge, rose 0.5 percent last month after adjusting for seasonal variations, following a 0.6 percent increase in March. The CPI rose 3.5 percent in the 12 months ended in April.

The CPI rose in recent months largely because of surging prices for crude oil, which was trading above $57 a barrel in early April. The national average price of gasoline rose as high as $2.28 for a gallon of unleaded regular on April 11, according to AAA.

Energy prices rose 4.5 percent in April and at a 51.2 percent annual rate in the three months ended in April, the department said.

Food prices climbed 0.7 percent last month, largely because of rising costs for fruits and vegetables.

But the so-called core CPI, which excludes food and energy costs, was unchanged in April and is up 2.2 percent from April of last year.

Meanwhile, oil slipped to less than $48 a barrel yesterday, while the national average for unleaded gas is $2.15 a gallon. Many economists, including several at the Federal Reserve, have said inflation pressures should ease significantly if energy prices stabilize or fall.

Stock prices rose and bond yields fell after the report was released, reflecting many investors' and analysts' expectations that the Fed will be able to continue raising interest rates at a gentle pace in coming months to keep inflation contained.

"There is no denying that inflation has accelerated in recent years, but this pickup has largely been an energy-price phenomenon," said Dana Saporta, an analyst with Stone & McCarthy Research Associates, a financial analysis firm. "We wouldn't be so bold as to forecast a decisive plunge in energy prices from current levels; it is reasonable to expect that the pace of energy-price growth will slow over time."

Fed officials raised the benchmark short-term interest rate, the federal funds rate, to 3 percent from 2.75 percent this month and indicated they will likely keep moving it higher in the months ahead. Policymakers have raised the rate in eight quarter-percentage-point moves since June, but many analysts have worried that rising inflation concerns might cause the Fed to increase rates more aggressively, possibly in half-point or more frequent steps.

The CPI report "would seem to support the Fed's position that underlying inflation remains well contained despite surging energy prices," said Paul Ashworth, senior international economist with Capital Economics Ltd., predicting that the central bank will lift the funds rate again at its June and August meetings.

The underlying inflation trend is "at the upper end of the Fed's comfort range, but not high enough for the Fed to hit the panic button," Nariman Behravesh, chief economist at Global Insight Inc., wrote in an analysis for clients. "The big question still is: when will the Fed stop raising rates? . . . The Fed will probably stop in November, when the Fed funds rate is at 4 percent."

Consumer prices rose last month for housing, medical care, recreation and education, the department said. But many of those increases were offset by falling prices for other items, including clothing, new vehicles, lodging and admissions to movies, theaters, concerts and sporting events.

American workers saw their paychecks grow faster than consumer prices in April. Average weekly wages for most workers rose 0.2 percent in April, after adjusting for inflation, the department said in a separate report.

But average weekly wages in April were 0.3 percent lower than they were in April of last year, after inflation adjustment, the report said. These wages are earned by production and non-managerial workers on private payrolls, who account for about 80 percent of the workforce.

"Unless working families can give up food and gas, this combination of slow wage growth and faster inflation continues to pinch," said Jared Bernstein, senior economist at the Economic Policy Institute.