Inflation Pressures Ease with Small Rise in CPI

Food prices rose 0.9 percent but were offset by a flat reading in energy costs. The government makes adjustments for expected seasonal price changes when computing the CPI to account for annual significant increases in gasoline costs during April. Gasoline prices rose 5.6 percent in April – an increase felt by many motorists at the pump – but registered as a 2 percent drop after seasonal adjustments. Natural gas prices rose 4.8 percent.

The core index, which excludes food and energy, increased by 0.1 percent compared to a 0.2 percent rise in March.

“Downturns in the indexes for public transportation, for household furnishings and operations, and for recreation, coupled with a larger decline in the index for lodging away from home, more than offset an upturn in the index for apparel,” the Labor Department’s release read.

The April numbers signaled better news from March when the CPI rose 0.3 percent. Economists had expected a 0.2 percent rise in both the CPI and the core index.

“The CPI report has been like a silver bullet striking at the heart of market fears about inflation,” Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto said according to the Wall Street Journal. “Bonds are absolutely justified in rallying sharply. This report puts possible Fed cuts back on the table, though more evidence will be needed before the Fed will pull the trigger again.”

The Federal Reserve has cut a key interest rate seven times to 2 percent since September in an effort to fight off a recession caused by a slumping housing market and a severe credit crunch. Fed officials have expressed concerns that further cuts could trigger unwanted inflation.

Stock markets welcomed the news on Wednesday with the Dow Jones industrial average rising 149 points to near the 13,000 mark by mid-afternoon. The Standard & Poors 500 gained 15.8 points to 1,418.84 and the Nasdaq Composite climbing 31 points to 2,526.13.