- The Washington Times - Thursday, May 13, 2004

ASSOCIATED PRESS

Wholesale prices, stoked by higher costs for gasoline and food, registered their biggest rise in a year during April, providing fresh evidence that inflation is awakening after a long slumber.

The Labor Department reported yesterday that the Producer Price Index, which measures the prices of goods before they reach stores, rose by 0.7 percent last month, following a 0.5 percent gain in March.

“There’s not an inflationary storm on the horizon, but there is definitely a cloudy inflationary sky,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “Inflation is becoming a bit of a nuisance after being quite tame and basically a nonfactor for the past year or more.”

April’s increase was the largest since a 1.3 percent increase in March 2003 and topped the 0.3 percent advance that economists were forecasting. Sharply higher prices for energy and food were the culprits of the gauge’s increase last month.

Excluding energy and food prices, the core rate of inflation rose in April by 0.2 percent for the second straight month, in line with analysts’ expectations.

In other economic news, sales at retailers dropped by 0.5 percent in April after a 2 percent gain in March, the Commerce Department reported. April’s performance suffered from a sharp drop in automobile sales.

Economists viewed the decline as a temporary respite for shoppers because they splurged so much the previous month. Analysts did not see the drop as a harbinger of drastic belt-tightening by consumers, whose spending accounts for two-thirds of all economic activity.

Still, rising energy prices can crimp spending on other goods, a potential factor in April’s sales decline and something that needs to be monitored, analysts said.

“When consumers are forced to pay more at the pump, it affects their spending in other categories,” said Tracy Mullin, president of the National Retail Federation.

New filings for unemployment benefits rose last week by 13,000 to 331,000, the Labor Department said. Even with the increase, claims were at a level suggesting the job market is improving.

The more stable four-week moving average of claims, which smoothes out weekly fluctuations, fell last week to 335,750, the lowest since Nov. 25, 2000.

On the inflation front, an improving economic climate is giving some companies more power to raise prices, which many were hard-pressed to do when the economy in a long slump.

While economic reports show inflation moving higher, Federal Reserve Chairman Alan Greenspan and his colleagues at their meeting last week indicated they are not yet worried. “Long-term inflation expectations appear to have remained well contained,” they said then.

The Fed decided last week to hold short-term interest rates at a 46-year low of 1 percent, unchanged since last June. But the central bank signaled that rates could move higher now that the economic recovery is on solid ground. Some economists believe the Fed will begin to raise rates as soon as its June or the August meetings to keep inflation in check.


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