April consumer price rise is fastest in 6 months But 0.2% increase is unlikely to force Fed to raise rates

Economy

May 15, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. consumer prices rose in April at the fastest pace in six months, suggesting inflation may accelerate from the 30-year lows reached earlier this year, a government report said yesterday.

Led by higher costs for housing and health care, the consumer price index rose 0.2 percent last month after being unchanged in two of the last three months, according to the Labor Department.

Excluding food and energy, the CPI rose 0.3 percent in April after rising 0.1 percent in March.

"The best news on inflation is behind us," said John Williams, chief economist at Bankers Trust Co. in New York.

Also yesterday, the Commerce Department said inventories of goods at U.S. businesses rose 0.5 percent in March after rising 0.7 percent in February -- either because retailers and other businesses were anticipating further strong demand or because they were stocking up on now-cheaper imports from Asia.

Offering support for hopes that demand won't slow, the Labor Department reported the number of people filing new claims for unemployment benefits was little changed last week. Initial jobless claims fell 2,000 to 307,000 in the week ended May 9, as the four-week average for initial claims held below 315,000 for the 14th straight week.

Still, Fed officials have shown their patience with the U.S. economy's strong growth and low inflation, keeping the overnight bank lending rate unchanged at 5.50 percent for more than a year. Only one of the 36 banks and securities dealers that deal directly with the Fed's trading desk -- Donaldson, Lufkin & Jenrette Securities Corp. -- expects the Fed to raise interest rates next week.

April's gain in consumer prices marked the biggest rise since October when consumer prices also rose 0.2 percent. Even so, for the 12 months ended in April, the CPI rose just 1.4 percent. That matched the year-over-year inflation rate for March, the second slowest pace in 33 years.

Price declines were offset last month by rising housing and medical costs. Housing costs, which make up about 40 percent of the CPI, rose 0.4 percent in April. Contributing to housing costs was a big increase, 1.2 percent, in the price of lodging away from home.

Medical care costs likewise rose 0.4 percent, the biggest increase since a similar 0.4 percent gain in January 1996. While it may not mean a return to out-of-control increases in health care costs, the big drops in costs brought about by managed care programs are a thing of the past, analysts said.

"Doctors have big operations, big overhead and it's increasing every year. The technology keeps getting better and better and more and more expensive," said Henry Moyer, a New York health care benefits consultant.

Within other components of the CPI report, food prices rose 0.1 percent. Tobacco prices rose 3.8 percent, the biggest monthly gain since a 4.2 percent rise in October 1982. That followed a 2.6 percent decline in March.

The report on March inventories showed retail inventories -- the only previously unreported element of the total -- rose 0.9 percent. The Commerce Department had estimated inventories would rise 0.5 percent in March. So the 0.9 percent gain suggests the government could raise its growth estimate from the preliminary reading of 4.2 percent at an annual rate.

Pub Date: 5/15/98

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