Another Sign Inflation Is Back

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AP
Wholesale prices rose by a hefty 0.6 percent in April — lifted by more expensive energy, cars and cigarettes, the government reported Tuesday.

The increase in the Labor Department's producer price index, which measures the costs of goods before they reach store shelves, came on top of a sizable 0.7 percent rise in March.

The latest figures offered fresh evidence that inflation is marching ahead now that the economy is on solid footing. The wholesale price report bolstered economists' belief that Federal Reserve Chairman Alan Greenspan and his colleagues will continue to push up short-term interest rates for much of this year to combat inflation.

Excluding energy and food prices, which can swing widely from month to month, "core" wholesale prices increased by 0.3 percent in April. That was up from a tiny 0.1 percent advance in March and represented the largest increase since a 0.7 percent spike in January.

Still, Michael Evans of Evans Economics was encouraged.

"If we look at the overall factors that usually influence inflation, then most of them are heading in the positive direction," Evans told CBS Radio News. "Of that 0.6, if we take out the energy prices, it was half that much, and we have evidence that energy prices are coming down."

In other economic news, the Commerce Department reported that housing construction jumped by 11 percent in April, compared with a 17.6 percent drop reported in March. The advance in April increased the total number of housing units builders broke ground on to 2.038 million, on an annualized basis. That exceeded analysts' expectations.

The latest snapshot of inflation also surprised economists. Before the report was released, they were forecasting a 0.4 percent rise in overall wholesale prices and a 0.2 percent increase in "core" inflation.

Wanting to make sure inflation doesn't become a problem, the Federal Reserve has boosted short-term interest rates eight times — each in modest, quarter-point moves — since last June, when the Fed's campaign to tighten credit began.

At the Fed's most recent rate increase, on May 3, policy-makers said "pressures on inflation have picked up in recent months and pricing power is more evident," meaning companies are finding it somewhat easier to raise prices to customers.

In April, price increases were fairly broad-based, covering a variety of categories. Rising energy costs, however, once again led the way.

Energy prices in April rose by 2.1 percent, following an even bigger 3.3 percent rise in March.