Overall Inflation Eases:
Gas Prices Up

MARTIN CRUTSINGER / AP 11may2007

WASHINGTON — Inflation at the wholesale level eased slightly in April even though gasoline prices surged for a third straight month.

Wholesale prices rose 0.7 percent last month, down slightly from a 1 percent jump in March, the Labor Department reported Friday. The big force driving the increase was an 8.2 percent jump in gasoline prices, which followed increases of 8.7 percent and 5.3 percent in the two previous months.

But outside of the volatile energy and food sectors, prices were unchanged last month, the second straight reading of zero for the closely watched core inflation index.

In other economic news, the Commerce Department reported that retail sales fell by 0.2 percent in April while inventories held by businesses on shelves and backlots fell 0.1 percent in March, the biggest decline in inventories in nearly two years.

The drop in sales served to underscore the tough environment for retailers last month as they battled a slumping housing market and rising gasoline prices, which left Americans with less to spend on other products. The nation's retailers had reported disappointing April sales in a survey released Thursday.

The 0.1 percent fall in business inventories was the largest fall since a 0.3 percent decline in July 2005 and reflected a big 0.7 percent drop in stockpiles held by retailers. The cutback came as retailers tried to get control of their stockpile in the face of a slowing economy.

The 0.7 percent increase in the Producer Price Index, which measures inflation pressures before they reach the consumer, was in line with expectations. The zero reading for the PPI excluding food and energy was better than expected, providing welcome news for officials at the Federal Reserve.

The Fed on Wednesday signaled that it continued to be more worried about the threat of inflation than the year-long slowdown in economic growth.

However, other economists believe the economy could be vulnerable to a possible recession, especially if the troubles in the housing sector deepen and the recent spike in gasoline prices triggers a cutback in consumer spending on other items.

Gasoline prices have surged to a record nationwide average of $3.07 per gallon, nearly 20 cents higher than two weeks earlier, according to the latest Lundberg Survey. That surpassed the old record of a nationwide average of $3.03 per gallon set last August.

Food prices, which had been surging, rose a more moderate 0.4 percent in April as big increases for vegetables, beef and chicken products were offset by declines for eggs and fruit.

Energy prices rose by 3.4 percent, led by the 8.2 percent increase in gasoline but also reflected a 8.7 percent jump in liquefied petroleum gas and a 4.8 percent jump in home heating oil.

Outside of food and energy, the unchanged performance of core inflation reflected a decline of 1 percent for new cars and a 0.5 percent drop in the category that includes sport utility vehicles.

source: 26jan2008