Retail Prices Nudge Upward; Production Flat

WASHINGTON — Consumer prices inched up just 0.1% in April while a recent surge in factory production moderated, the government said Thursday in two reports that cheered Wall Street.

Declining food and energy costs tempered higher retail prices for other products and services, holding consumer price increases so far this year to an annual rate of 1.5%.

However, when volatile prices for food and energy are excluded--as analysts often do to gauge broader economic trends--prices were up 0.3% last month, the largest increase since September. That left the “core” rate of inflation rising at an annual rate of 2.7% during the first four months of the year.

“Inflation’s not dead,” said David Wyss, economist at DRI/McGraw-Hill in Lexington, Mass.

Still, the mixed reports were greeted warmly by Wall Street, where stock prices rallied and bond yields fell. Investors appear confident that the inflation news is benign enough to keep the Federal Reserve Board from raising interest rates when it meets Tuesday.

While core consumer inflation is rising faster than the overall rate, analysts noted that prices at the wholesale level have declined for four straight months. That suggests no inflation in the pipeline, experts say.

What’s more, another government report Thursday said industrial production was unchanged in April after jumping 0.6% in March and 0.5% in February. While the slowdown was mainly attributed to strike-related decreases in auto production, some economists said it points to an overall slowdown in manufacturing activity.

The labor market, however, continues to be tight. The government also said Thursday that the number of Americans applying for unemployment benefits dropped by an unexpectedly large 31,000 last week, to 319,000.

“So far, [consumer price inflation] tells us we’re home-free, but the watch is on in this very tight labor market,” which could fuel higher wage inflation, said Allen Sinai, economist at Primark Decision Economics in New York.

The inflation report showed that energy prices fell 1.5% in April, after a 1.7% drop in March. Food prices eased 0.2% in April.

Meanwhile, medical costs rose 0.3% last month. Also, airline fares rose 1.2%, on top of a 4.5% jump in March, reflecting a continuing readjustment after the reimposition of the 10% federal ticket tax.

Clothing costs jumped 0.9% in April, the biggest gain since February 1993. That increase was largely the result of a decrease in discounting by retailers, said Pamela Rucker of the National Retail Federation.

“There are fewer price markdowns because retailers have decided to be less promotional,” Rucker said. “Consumers are more confident, and we believe they are more willing to buy at full price.”

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Industrial Production

Index: 1987=100; seasonally adjusted

April: 119

Source: Federal Reserve Board

Consumer Prices

Percentage change, month to month, seasonally adjusted:

April: +0.1%

Source: Bureau of Labor Statistics