- The Washington Times - Thursday, May 16, 2002

ASSOCIATED PRESS
Consumer prices shot up in April by the largest percentage in nearly a year, especially hitting the wallets of motorists, air passengers, hospital patients and smokers.
One of the government's most closely watched inflation gauges the Consumer Price Index jumped 0.5 percent last month, following a 0.3 percent advance, the Labor Department reported yesterday.
Higher costs for gasoline, air fares, hospital services and tobacco were the biggest culprits behind last month's sharp rise.
"Consumers saw their purchasing power erode last month," said Lynn Reaser, chief economist for Banc of America Capital Management. "Consumers want to stay ahead of inflation, but in April, many of them probably did lose some ground."
The core rate of inflation, excluding volatile energy and food prices, rose 0.3 percent last month, up from a tiny 0.1 percent increase.
"I think it shows the continued split personality of inflation: Goods prices are dormant but service prices are showing signs of bubbling a bit," said Tim O'Neill, chief economist with Bank of Montreal.
Still, economists didn't believe the increase in consumer prices last month should sound alarm bells for shoppers or for the economy. For the most part, economists aren't expecting inflation to become a problem. While the outlook for energy prices, which have pushed higher on tensions in the Middle East, is more of a wild card, economists don't foresee dramatic price increases.
Although companies whose profits took a hit during last year's recession may be itching to raise prices, many will probably be restrained by competition and cheaper imported goods flowing into the United States, economists said.
Price increases should also be restrained by worries about how consumers who kept on buying throughout the slump will hold up coming out of it, they added.
In other economic news, industrial output increased for the fourth straight month, rising 0.4 percent in April, the Federal Reserve said. Makers of automobiles, home electronics and computers all reported solid gains.
Businesses also reduced their stocks of unsold goods in March by 0.3 percent, the 14th straight monthly decline, the Commerce Department said. As stockpiles are depleted, factories must boost production to meet demand, which bodes well for economic growth.
Economists said all three reports suggest that the economic recovery is on track and proceeding at a moderate not sizzling pace.
In the inflation report, the 0.5 percent in consumer prices was the biggest rise since May 2001.
Energy prices, which rose 4.5 percent last month as global output of crude oil shrank, had a big influence in the rise.
Gasoline prices jumped 10.1 percent, the largest increase since June 2000, partly reflecting the higher crude oil costs. Even with the increase, gasoline is 9 percent cheaper than it was a year ago.
Air fares went up 0.9 percent last month as airlines removed some of the deep discounts that they had put in place last year to lure flyers after the September 11 attacks.
Charges for hospital and related services rose 1.1 percent, the biggest increase since November 1990.
Hospital charges are up 8.6 percent from last year.
Consolidations and closings of hospitals have reduced the number of unused beds, helping to lift prices, economists said. Increased demand for new, higher-priced medical procedures and tests and growing demand from an aging population also contributed to the rise, they said.
Prices for tobacco products climbed 6.5 percent, the largest gain since September 1999. That increase, economists said, reflects some state tax increases, wholesale price increases and reduced discounts from some major brands.
There were still some bargains to be found last month. Prices for clothes fell 0.6 percent. Car prices dipped 0.2 percent and computer and telephone prices each declined by 0.9 percent.
Food prices edged up just 0.1 percent in April. Prices for vegetables, fruits, poultry, pork and dairy products all went down.
Citing uncertainties about the vitality of the recovery, the Federal Reserve last week left short-term interest rates unchanged at 40-year lows. Fed Chairman Alan Greenspan has said generally low inflation gives policy-makers the luxury of waiting to see how the recovery unfolds before boosting rates.


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