WASHINGTON -- Consumer prices rose only 0.2 percent in April, but the tame number masked an ugly reality for many Americans -- food prices rose almost 1 percent for the month, the highest monthly jump since 1990, and by 5 percent over the previous year.
Yesterday's inflation report from the Bureau of Labor Statistics was sure to prompt debate for another reason: It showed gasoline prices falling 2 percent in April -- a figure most motorists would sharply dispute.
"The drop makes absolutely no sense," said Mark Vitner, senior economist with Charlotte, N.C.-based Wachovia, in a note to investors that questioned where the government data collectors buy their gas.
The AAA Motor Club's fuel gauge report said the national average for a gallon of unleaded gasoline stood at $3.75 yesterday, up 38 cents from a month ago and up 67 cents from one year ago. The nationwide average for diesel fuel was $4.41 a gallon, up 31 cents from a month ago and $1.51 from one year ago.
The good news in yesterday's report is that core inflation -- which excludes volatile food and energy prices -- rose by only 0.1 percent. That suggests that the spike in fuel and food costs is not yet forcing workers and companies to demand higher wages and prices across the board to offset those rising costs. That leaves the Federal Reserve some breathing room when it meets next month to discuss cutting interest rates an eighth consecutive time to keep sparking the sluggish economy.
But prices continue to rise at the grocery store, by 1.5 percent in April and 5.9 percent since April 2007. Food prices rose 0.9 percent in April and 5 percent since April 2007.
The consumer price index is calculated by collecting prices across the country in hundreds of categories of goods and services. Different items are weighted to reflect which items are more essential in the normal consumption pattern of American families.
Policymakers give more weight to measurements of core inflation, because it omits food and energy prices, which can fluctuate wildly from month to month.
In yesterday's report, the decline in housing costs helped keep inflation under control. But the Wachovia analysis pointed to other important costs that also are moderating. These include the slowing of medical cost increases, which have risen just 1.6 percent over the past three months. Prescription drugs and medical supplies actually fell by 0.2 percent in April, putting their cumulative rise over the first four months of the year at 3 percent.
"The tapering of core inflation probably reflects reduced business pricing power as the economy has weakened," wrote Peter Kretzmer, an economist in New York with Bank of America.
Mr. Kretzmer saw positive news in yesterday's report. Three consecutive months of tame core inflation data suggest that "persistent commodity price increases still have had limited impact on general pricing behavior."
But Kenneth Beauchemin, an economist for forecaster Global Insight in Lexington, Mass., suggested that April's inflation data might reflect calm before the storm. He expected core inflation to tick up later in the year as oil prices above $125 a barrel and rising costs of gasoline and diesel fuel feed into farm and manufacturing costs.
"The remarkable consistency of the 'across the board' increases in food prices emanates from a number of sources, including the soaring energy prices," he said in a research note. "To what extent, and when, the energy price onslaught embeds itself into core consumer prices is an open question."