Sharply Higher Food Costs Fuel Jump In Consumer Prices

The biggest surge in food costs in five years pushed consumer prices up 0.4 percent in April, cramping family budgets and all but killing chances the Federal Reserve will soon cut interest rates.

The Labor Department report Friday showed prices climbing at their fastest clip since last August as the cost of food, gasoline and air fares all shot up. Flooding in California was a big factor in the food increase.

Analysts suggested the inflation was only temporary.

“We feel the economy has slowed enough that inflation will not get out of hand,” said Joel Prakken, an economist at Laurence H. Myer & Associates in St. Louis.

Other reports Friday continued to show the economy was slowing. A survey of auto sales in early May by CNW Marketing Research showed a sharp 9.9 percent decline while the Commerce Department reported that unsold business inventories rose 0.7 percent in March.

The inventory report could mean further production cutbacks in what was already shaping up as a weak quarter. But economists said the worst message from Friday’s reports was that the Fed is unlikely to lower interests rates soon because of the threat of inflation.

“My feeling is that the Fed is on hold until 1996. Only if the economy suddenly got much weaker this summer would the central bank consider easing,” said Bruce Steinberg, senior economist at Merrill Lynch.

The 0.4 percent advance in the CPI for April was double the 0.2 percent increase in March and was the biggest jump since a similar 0.4 percent rise last August.

For the year, consumer prices have been rising at an annual rate of 3.6 percent, a significant pickup from the 2.7 percent increase for all of 1994. However, many economists stressed that much of last month’s price pressures, particularly food and energy costs, reflected temporary factors that will be reversed in future months.

Eighty percent of the April surge in prices was blamed on 7.5 percent rise in fruit and vegetable prices, reflecting in large part the California floods.


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