Inflation Signs Cause Growing Concern
Consumer prices climbed in April for the fifth straight month, with intensifying inflationary pressures weighing on a wide variety of goods and services, the government said Friday.
The Labor Department’s consumer price index, the most widely watched measure of inflation in the U.S., rose by a seasonally adjusted 0.2%, less than half the 0.5% rate in March and below many analysts’ projections. And gasoline prices actually fell 0.3%, though motorists in the Los Angeles area who paid an average $2.153 for a gallon of regular last month might not have noticed. (The statewide average hit a record $2.223 this week.)
But April’s core inflation rate -- excluding volatile energy and food prices -- was a higher-than-expected 0.3%, following a 0.4% uptick in March.
It’s core inflation that the Federal Reserve monitors and considers when determining interest rates. Many analysts said the rise in core inflation would put pressure on the Fed to boost rates, which might moderate economic growth and price inflation. At 1%, the Fed’s key rate is at a 46-year low.
“Barring a dramatic weakening of labor market data or other evidence about economic growth, today’s data increase what were already very high odds” of a quarter-point rate increase by the central bank in June, said Joshua Shapiro in a report for MFR, a New York-based economic consulting firm.
The consumer price data showed that the CPI rose at a 4.4% annualized rate in the first four months of this year; it rose 1.9% in all of 2003.
The part of the index tracking energy prices, which grew 6.9% last year, jumped at a 28.3% annual rate in the first four months of this year.
Although gasoline in the CPI fell in April, it might not in May: Gasoline futures have risen 21% the last three weeks. On Friday, they reached a record for a third day as traders on the New York Mercantile Exchange speculated that strong demand and tight refining capacity would squeeze the market in summer.
The consumer data were released after the government said wholesale prices rose 0.7% in April.
“The long period of disinflation has ended,” said Steven Wood, chief economist for Insight Economics, in a report to clients. “Inflation is now accelerating, although from a long-term perspective it remains relatively low.”
In a separate report Friday, the Federal Reserve said industrial production rose 0.8% in April, much higher than forecast, after dropping the previous month. It was the seventh increase in the last eight months as demand for computers, semiconductors, furniture and appliances increased.
“Production is ramping up as rising demand and low inventories has businesses scrambling to restock their shelves, while business equipment is being replaced or upgraded,” said Wells Fargo economist Sung Won Sohn.
Meanwhile, the University of Michigan’s initial report on consumer sentiment in May remained unchanged from 94.2 in April. Many analysts had predicted that it would increase.
“It’s certainly understandable that people have reservations right now given soaring gas prices and the situation in Iraq,” said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. “The economy is doing well and jobs are picking up, so fundamentally you’d think people would be more confident, but there are some crosscurrents.”
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Bloomberg News was used in compiling this report.
