Consumer Prices Up, Inflation on the Rise

By JEANNINE AVERSA, AP Economics Writer 22 minutes ago

WASHINGTON - Consumer prices climbed by 0.5 percent in April, reflecting the biggest rise in energy prices in two years, along with more expensive air fares and food costs.

The increase in the consumer price index, the government's most closely watched inflation barometer, followed an even larger 0.6 percent advance in March, the
Labor Department reported Wednesday.

While the latest snapshot of consumer prices showed that inflation is on the rise, it also suggested that it is not on the brink of spiraling out of control.

Excluding energy and food prices, which can swing widely from month to month, "core" inflation was flat in April. That's a big improvement from March, when core inflation shot up by 0.4 percent, the largest advance in 2 1/2 years.

The flat reading on core inflation, which is closely monitored by the Fed, was the best showing since November 2003.

The inflation report is likely to keep the
Federal Reserve on its current path of modestly boosting short-term interest rates to keep prices in check. The Fed is expected to nudge up rates at its next meeting at the end of June and probably will continue that policy through much of this year, analysts say.

In an effort to combat inflation, the Federal Reserve has raised short-term interest rates eight times — each in quarter-point increments — since last June. The most recent increases, on May 3, left the Fed's key interest rate at 3 percent, the highest since the fall of 2001.

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.

The overall inflation reading of 0.5 percent in April was slightly higher than the 0.4 percent rise that economists were forecasting before the release of the CPI report. But the flat reading on core inflation was better than the 0.2 percent uptick that analysts were expecting.

The CPI report showed that in April, energy and food led the way in terms of price increases.

Energy prices jumped by 4.5 percent last month. That was up from a 4 percent gain in March and represented the biggest advance since March 2003.

In April, gasoline prices went up by 6.4 percent, natural gas prices rose 5.6 percent and fuel oil increased 4.6 percent.

Rising energy costs are being driven by surging oil prices.

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 hover above $48 a barrel. Economists, however, are hopeful that the moderation in oil prices — if maintained — might ease inflation pressures.

At the pump, the average price nationwide of regular gasoline was $2.16 a gallon last week, according to figures tracked by the Energy Department.

Food prices, meanwhile, marched up by 0.7 percent in April, compared with a more modest advance of 0.2 percent in March. Some economists believe that rising food costs are reflecting in part higher transportation costs due to expensive fuel prices.

Airfares climbed by 3.6 percent in April, the largest increase since June 2001, as carriers boosted prices to cover higher fuel costs.