By Jeannine Aversa, Associated Press Writer
WASHINGTON – Inflation appears to be stirring from its hibernation. Consumer prices are advancing in the first four months of this year at a pace twice as fast as the increase for all of 2003.
That in turn is increasing chances that the Federal Reserve will boost interest rates next month, according to a growing number of analysts. They point to a string of economic reports, from sizable gains in the nation’s payrolls to brisk manufacturing activity, that paint a picture of an economic resurgence that is beginning to fan inflation.
“The economy is just taking off and is taking inflation with it,” said Mark Zandi, chief economist at Economy.com. “I think it is just too much for the Fed to ignore, and they will have to tighten policy in June.”
From January to April, consumer prices rose at a seasonally adjusted annual rate of 4.4 percent, compared with a 1.9 percent increase for last year, the Labor Department reported Friday. This year’s pickup has been led by sharply higher energy prices, especially for gasoline.
The core rate of inflation, from which energy and food prices are excluded, has risen so far this year by 3 percent, outpacing the 1.1 percent rise for 2003.
“Inflation is peeking out from underneath the covers,” said Bill Cheney, chief economist at MFC Global Investment Management, though economists don’t view the price acceleration as particularly worrisome at this point.
In other economic news Friday, the Federal Reserve reported that industrial production jumped by 0.8 percent in April, the biggest increase since November, up from a 0.1 percent dip in March.
The Commerce Department said businesses boosted their inventories by 0.7 percent in March, a sign that companies feel more confident in the recovery’s staying power. Business sales rose by 2.9 percent in March.
The Dow Jones industrials, meanwhile, edged up 2.13 points to close at 10,012.87.
On inflation, some companies, which have had to keep a lid on price increases during the economic slump, are finding it easier to raise prices now that the economy is rebounding. Wholesale prices in April posted their biggest increase in a year, the government reported Thursday.
While recent economic reports show inflation moving higher, Federal Reserve Chairman Alan Greenspan and his colleagues indicated at their meeting last week they are not yet worried. “Long-term inflation expectations appear to have remained well contained,” they said in their report of the session.
Thus, the Fed decided to hold short-term interest rates at a 46-year low of 1 percent, unchanged since last June. The central bank signaled, however, that rates could move higher now that the economic recovery has firm roots.
An increasing number of economists now believe the Fed will begin raising rates at its next meeting June 29-30, saying Friday’s inflation report, along with a recent batch of mostly strong economic data, would justify such a move.
“Put a fork in the 1 percent funds rate. It’s done,” said Joel Naroff, president of Naroff Economic Advisors. “The steady, upward creep in inflation continues and will have to be addressed fairly soon by the Fed.”
Some economists predict a rate increase will come in August; a few think it will come even later.
Analysts don’t believe inflation threatens the recovery, but the upward movement in inflation marks a big change in the pricing climate from a year ago. Then, the Fed worried about the possibility of deflation, a prolonged and widespread price decline.
In April, consumer prices rose by 0.2 percent, while core prices went up 0.3 percent.
Energy prices, which increased 0.1 percent in April, soared in the first four months of this year at annual rate of 28.3 percent. Prices for gasoline, fuel oil and natural gas were up sharply during the period.
Stron global demand and tensions in the Middle East have catapulted oil prices in recent days.
Food prices, meanwhile, rose 0.2 percent in April and so far this year have gone up at a 1.5 percent annual rate.
Airfare prices, which jumped 1 percent last month, rose at a 13 percent rate in the first four months of this year, reflecting in large part higher fuel costs, economists said. Costs for medical care rose 0.4 percent in April and were up at a 5.4 percent rate so far this year. College tuition and fees, which increased 0.6 percent last month, rose at a rate of 9.3 percent so far this year.