US consumer inflation to grow slower than expected

US inflation rose less-than-expected in April, official figures today showed, suggesting that inflationary pressures in the American economy are not as big as feared.

The continued rise in energy and food prices pushed the consumer price measure of inflation up by 0.4% last month, but this was lower than Wall Street expectations of 0.5%, data from the Labour Department showed.

The core rate, which excludes volatile food and energy prices, grew by 0.2% - in line with forecasts.

"It is comforting and it gives the Federal Reserve more wiggle room to move rates lower if it needs to," said Richard Dekaser, economist at National City Corporation. "It reduces the pressure on the Fed to continue its preoccupation with inflation risk."

Excluding the unstable food and energy components, the price advances in the first four months of this year painted a moderate picture of inflation, rising by just 2.2% compared to 2.6% over the same period in 2006.

Accounting for food and energy, however, the consumer price inflation index rose by 4.8% in the period from January to April compared to 2.5% for all of 2006, the Guardian reports.

Today's report showed energy prices rose 2.4 percent after jumping 5.9 percent in March. Fuel oil costs rose 2.1 percent and natural gas prices fell 1 percent. Gasoline prices jumped 4.7 percent.

Prices at the pump for regular gasoline averaged $2.83 a gallon in April, up from $2.56 in March, according to the American Automobile Association. The price rose throughout the month, ending at $2.97 on April 30, just shy of the record $3.06 reached in Sept. 5, 2005, in the aftermath of Hurricane Katrina. The record was eclipsed this month as the price reached $3.09 a gallon yesterday.

Food prices, which account for about a fifth of the CPI, rose 0.4 percent after a 0.3 percent increase in March, Bloomberg reports.

Procter & Gamble Co., the largest U.S. consumer-goods maker, raised prices last quarter as raw-material costs increased, Chief Financial Officer Clayton Daley said May 1. Green coffee, pulp used in paper products and zinc for batteries were all more expensive, he said.

Wall Street investors agreed, believing the better-than-expected reading on inflation would hasten the day when the Federal Reserve might start cutting interest rates to deal with an economy that has been battered by a significant slump in housing.

The Dow Jones industrial average finished the day up 37.06 points to set a record close at 13,383.84.

In other economic news Tuesday, the National Association of Home Builders reported their builder confidence survey slipped to a reading of 30 in May, the lowest point in the current housing slump, as concern mounted over what rising mortgage foreclosures and tighter bank lending standards will do to demand going forward.

"The crisis in the subprime market has infected other parts of the mortgage market as well as consumer psychology and as a result the housing outlook has deteriorated," said David Seiders, chief economist for the home builders.

RealtyTrac Inc., a research firm, said mortgage lenders foreclosed on 62 percent more homes in April than a year ago and forecast the foreclosure rates will remain elevated for the rest of this year.

In a third housing report, the National Association of Realtors said 82 out of 145 metropolitan areas surveyed saw median home prices rise in the first three months of this year, compared to a year ago, an improvement from the fourth quarter when just 71 metropolitan areas reported year-over-year price gains.

The 0.4 percent increase in consumer prices was driven by a 4.7 percent jump in the cost of gasoline, which followed an even bigger 10.6 percent March advance.

The nationwide average price for gasoline has surged to a record $3.07 per gallon, according to the latest Lundberg Survey, surpassing the old mark of $3.03 per gallon set last August.

The big price spike has been blamed on unexpected refinery shut downs that have crimped supplies. Analysts warned that consumers can expect further increases this month.

Through the first four months of this year, consumer inflation is rising at an annual rate of 4.8 percent, almost double the 2.5 percent increase for all of 2006. The acceleration has occurred in large part because of higher costs for food and energy, the AP reports.

Prepared by Alexander Timoshik

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Author`s name Alex Naumov