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Figures in consumer inflation report reassure Wall Street

Stock prices soar as investors worry less about a broad rise in prices and interest rates.

Wall Street posted big gains for the third straight day Wednesday as a benign reading of consumer inflation relieved investors. The Dow Jones Industrial Average jumped more than 130 points, giving the indicator a gain of more than 300 points this week.

Investors were also encouraged by a decline of nearly $2 a barrel in oil prices, which alleviated another source of persistent concern.

Despite the upturn, however, it was not clear that the market had completely shaken off the lingering worries about inflation and rising interest rates that have dogged it over the past several weeks.

Those concerns were fed as big jumps in energy and food costs pushed consumer prices higher in April, but many other prices calmed down, mitigating fears about a broad outbreak of inflation. That sparked the rally on Wall Street.

From an economic and investor point of view, the Labor Department's latest snapshot of the nation's pricing climate, released Wednesday, suggested inflation pressures are moderating and the Federal Reserve can probably stick to gradually raising rates to keep inflation under control.

The consumer price index rose 0.5 percent in April, down slightly from a 0.6 percent rise in March.

What really comforted economists and investors, though, was that "core" prices - excluding volatile energy and food costs - didn't budge in April.

The flat reading on that gauge, closely tracked by the Fed, was a big improvement from March, when core inflation shot up 0.4 percent, the most in 21/2 years. It marked the first month since November 2003 that core prices didn't rise.

Falling prices for clothing, lodging and new cars helped restrain core inflation in April.

Weekly earnings of nonsupervisory workers, after adjusting for inflation, rose 0.2 percent in April, compared with declines of 0.3 percent in both February and March.

In April, big increases in energy and food costs were the main culprits behind the rise in the overall CPI.

Energy prices jumped by 4.5 percent last month, the biggest advance in two years. Gasoline prices went up by 6.4 percent, natural gas prices rose 5.6 percent and fuel oil costs increased 4.6 percent.

[Last modified May 19, 2005, 00:43:18]