Prices Rose Faster Than Wages in April

Inflation Figures Shed Light on Retail Slump

Prices for food, gasoline, medical care and other items rose faster than most workers' wages last month, the government reported yesterday, adding to concerns that a squeeze on consumer spending might further weaken the sluggish economy.

The Labor Department said yesterday that its consumer price index, a broadly followed gauge of inflation, rose 0.4 percent in April, largely reflecting a 2.4 percent increase in energy costs, including gasoline, fuel oil and electricity.

After adjusting for inflation, average weekly earnings fell 0.5 percent last month and are up 0.9 percent from a year before, the department said in a separate report. These are the wages paid to private factory and non-managerial service workers, who account for four of every five workers.

The new figures help explain why retail sales fell in April and why many economists are lowering their forecasts for economic growth this year.

"Slow job growth, deepening troubles in the housing market and in manufacturing . . . record debt and debt-service costs, and rising gasoline prices all suggest that the sharp drop in consumer spending in April may portend further economic slowing or recession ahead," Charles W. McMillion, chief economist of MBG Information Services, said in a report to clients.

Gasoline prices rose 4.7 percent in April, the inflation report showed. And pump prices have climbed higher this month to an average $3.08 for a gallon of regular yesterday, up from $2.85 a month earlier, according to the AAA auto club.

So far this year, consumer prices have risen at a 4.8 percent annual rate, almost double the 2.5 percent increase for all of 2006.

Prices rose last month for medical services, housing, fruits and vegetables, beef and chicken, hotel rooms, dry cleaning, and other goods and services. Those increases were partially offset by falling prices for clothing, furnishings, air travel and new automobiles.

Stocks rose yesterday as investors drew encouragement from the milder "core inflation" measures, which strip out volatile food and energy prices. The core CPI rose 0.2 percent last month and was up 2.3 percent in the 12 months that ended in April -- the lowest 12-month reading in a year.

"There is little evidence the run-up in gasoline prices is spilling over to other goods," said Mark Vitner, a senior economist at Wachovia. "Instead, higher energy costs are restraining demand and price hikes elsewhere."

Several analysts said the core inflation figures should comfort Federal Reserve policymakers, who have held short-term interest rates steady for nearly a year in hopes that a slowdown in economic growth would cool price pressures. The central bank's top policymaking committee said in a statement after its meeting last week that it remained more concerned about high inflation than tepid growth.

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said in an interview Monday that recent inflation figures have been "encouraging" and that "it appears the movement has been in the right direction."

But Fisher also said he is not convinced inflation will continue ebbing as much as the Fed wants it to. "One month's data does not a trend make," he said. "I still think inflation is a great risk."

Fisher said consumers have been affected by rising gas prices and softening home values but have benefited from a strong labor market. He expects consumer spending to grow more slowly this year than in 2006 but to hold up reasonably well as long as job growth remains solid.

"We still have a very strong employment machine in this country," Fisher said. "Obviously, if people earn money, they're going to spend it"