April brings higher costs to consumers

The 0.5 percent spike in inflation is the highest since last May, a report says.

©Associated Press
May 16, 2002

WASHINGTON -- 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 Wednesday. Higher costs for gasoline, air fares, hospital services and tobacco were the biggest culprits behind last month's sharp rise, the highest since May 2001.

"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 want 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.

On Wall Street, stocks were mixed. The Dow Jones Industrial Average closed down 54.46 points at 10,243.68, while the Nasdaq Composite Index rose 6.51 to 1,725.56.

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