990546 Consumer Prices Jump in April

Washington - Consumer prices took the biggest leap in nine years last month as Americans faced a record spike in gasoline prices and costs jumped for many other goods and services -- from food and clothing to doctor's office visits and airline tickets.

“The best news on inflation is probably behind us,” said Sung Won Sohn, an economist with Wells Fargo & Co. in Minneapolis. “Even though one month does not make a trend ..., I think we are beginning to see pent-up price pressure show up.”

April's 0.7% rise in the Consumer Price Index, reported by the Labor Department on Friday, was the largest since October 1990 and pushed the rate of inflation so far this year to 3.3% on an annual basis. That compares with a 1.6% rise for all of 1998, a year in which consumers benefited from falling energy prices.

Wall Street investors, sensitive that signs of inflation could prompt Federal Reserve officials to raise interest rates, were spooked. The Dow Jones average of industrial stocks closed at just over 10,913, down almost 194 points although slightly off its in-session lows. Bond prices also were down sharply.

A 6.1% surge in energy prices, the biggest one-month gain on record, led the inflation upswing. Gasoline prices soared 15% in April, the most since the government started keeping track in 1935. The cost of fuel oil and electricity also rose.

The surge in energy prices was predicted, however, and is expected to be temporary.

After global economic turmoil pulled energy prices down sharply last year, the Organization of Petroleum Exporting Countries agreed this spring to limit production for a while. Unlike most previous OPEC cutbacks, this one so far has been generally followed. Also, analysts say, military fuel demands for the conflict in Yugoslavia are tightening energy markets.

The latest Lundberg Survey of 10,000 gas stations nationwide found the average per-gallon price of gasoline was $1.2337 on May 7, up about 23 cents since it bottomed out in February. The respected industry report also noted that pump prices now appear to be stabilizing after several weeks of quick growth.

Food prices also went up in April, by 0.1%, after a decline in March. Fresh vegetable prices fell 0.4% as early spring harvests began, but the cost of fruit soared 3.8% as droughts in Florida contributed to that increase. Meat, poultry, fish and egg prices rose 0.3%, including a 1% increase in the cost of beef.

But the greatest worry to economists was an unexpectedly sharp 0.4% April increase in core prices, which exclude the often-volatile energy and food categories. It was the biggest increase in core prices since January 1995.

“Because of that, this report I think has more credibility. It may not just be a temporary bump,” Sohn said.

Clothing prices jumped 1.5%, the biggest monthly increase since March of 1990. Housing prices were up 0.4%, including a 1.9% increase in hotel prices.

The cost of medical care rose 0.4%. Prescription drug prices rose 0.8%, doctor's office prices 0.4%.

Tobacco prices jumped 3.6%. Airfares rose 2%. Motor vehicle prices rose 0.1%, which analysts said largely reflected expiration of new year's sales incentives.

Brisk spending by American consumers, enjoying the lowest unemployment rate in almost three decades and big stock market gains, has been credited with keeping the U.S. economy healthy in the midst of international economic trouble.

A third of the world's countries have gone into recession during the past two years. The resulting fall in world demand for U.S. products and flood of discount-priced imports have helped keep inflation in check.

But now there are signs that other countries may be recovering -- a twist that economists warned could cause inflation.

In a separate report Friday, the Federal Reserve said production at the nation's factories, mines and utilities rose 0.6% in April, the most since August 1998. Output rose across the board, from consumer products including home electronics and clothing, to business equipment and construction supplies.

Most analysts said they still don't expect an interest rate increase when Fed officials have their next meeting, scheduled for Tuesday.

“But it is a much closer call,” said Bruce Steinberg, chief economist for Merrill Lynch & Co.

Some economists predict the nation's central bank could signal interest rate hikes will be coming later this year by switching its “bias” -- a publicly disclosed gauge of Fed officials' state of mind -- to favor raising rates. Its current position is neutral.

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