Good news this morning, giving the bulls some legs.
"Inflation pressures eased a bit in April despite the biggest jump in food prices in 18 years. The Labor Department reported Wednesday that consumer prices edged up 0.2% last month, compared to a 0.3% rise in March.
The lower inflation reflected a flat reading for energy, which helped offset a 0.9% jump in food costs as prices climbed for many basic items, from bread and milk to coffee and fresh fruits.
The unchanged reading for energy reflected a big 4.8% jump in natural gas prices, offset by a 2% decline in gasoline costs.
The reported drop in gasoline prices reflected the government's accounting process, which discounts expected seasonal price changes.
Since gasoline prices normally rise significantly in April, the 5.6 percent rise in prices for the month turned into a 2% drop after the government adjusted for normal seasonal changes. That was little comfort for motorists now paying record prices at the pump, which are nearing $4 per gallon.
Core inflation, which excludes food and energy, showed prices well behaved in April, rising by just 0.1%, compared to a 0.2% gain in March.
The 0.2% reading for the overall Consumer Price Index was slightly lower than the 0.3% rise that economists had been expecting and the 0.1% rise in core inflation was below the 0.2% reading that had been expected.
Those better-than-expected performances should ease concerns at the Federal Reserve that the sharp increase in food and energy prices this year would lead to broader inflation problems. However, economists cautioned that the recent surge in oil prices to record levels near $127 per barrel has yet to be felt at the consumer level.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, said that the weak economy was starting to show up in lower prices in some areas. He noted that the price of hotel rooms dropped for a third straight month, falling by 1.9% in April, a reflection of cutbacks in business and vacation travel.
The Fed, fighting against a severe credit crunch and spreading economic weakness, has cut interest rates seven times since last September in an effort to keep the country from toppling into a recession.
However, last month it signaled that it might take a pause in the rate cuts, with some Fed officials expressing worries that further reductions in interest rates could trigger unwanted inflation. The central bank is expected to keep rates unchanged when officials next meet June 24-26.
So far this year, overall inflation is rising at an annual rate of 3%, down from a 4.1% increase for all of 2007. Core inflation, excluding energy and food, is up at an annual rate of 1.8 percent in the first four months of this year, compared with a 2.4% increase for all of 2007.
Even with the slowdown in price increases so far this year, workers' wages are not keeping up. A separate Labor Department report showed that average weekly earnings for nonsupervisory workers dropped by 1% in April compared with a year ago, after adjusting for inflation. It was the seventh straight month that inflation-adjusted wages were down compared to a year ago.
The combination of rising food and energy costs, weak wage gains and falling home prices have left households feeling squeezed, with consumer confidence readings plunging to recessionary levels.
While many economists believe the country is in a recession, other analysts contend that the country may be able to avoid a full-blown downturn, especially if consumers spend a sizable portion of the 130 million economic stimulus payments that the government is now sending out."
By Martin Crutsinger, AP Economics Writer