WASHINGTON — Retail prices jumped 0.7% in April, the worst consumer price acceleration since the beginning of 1987, the Labor Department said Thursday. But most of the increase was caused by soaring energy prices, which have already begun to subside.
Without the 5.1% rise in energy prices, which included a record 11.4% surge in gasoline prices, the increase would have been a much more moderate 0.2%. And the "core" rate of inflation--which excludes energy and food, the two most volatile components of the consumer price index--was also 0.2%, its lowest level since last August.
Wall Street interpreted the news as favorable, and the Dow Jones industrial average rose more than seven points.
Indeed, the main disagreement among analysts was whether to view the report as mostly good news or only partly good news. And that, in turn, mostly depended on whether an analyst believes that the Federal Reserve Board will accept the gradual slowdown of the core rate so far this year as actual proof of slowing inflation or only as a promise of it. The core rate has dropped from 0.5% to 0.4% and now 0.2%.
"We're encouraged, because the core rate of inflation has declined markedly from 0.4% to only 0.2%, with every major category besides energy either rising more slowly than before or not accelerating," said Irwin L. Kellner, chief economist for Manufacturers Hanover Bank in New York.
Kellner said the report demonstrated that the Federal Reserve Board has succeeded in its effort to slow the economy and dampen inflation by raising interest rates.
"The Fed should be satisfied that the slowdown is working and that inflation pressures are easing," he said. To Kellner, the only remaining question about near-term Fed policy is not whether the central bank will soon ease interest rates but when it will ease them.
Other economists said the Fed would merely interpret Thursday's report as justifying its current policy. They pointed out that the first four months of 1989 suggest an annual inflation rate of 5% to 5.5%--not fast enough to panic over, but not slow enough to satisfy the Fed.
"This was mixed, at best," said Bruce Steinberg of Merrill Lynch in New York. "Over half of it was energy, so the rest was fairly moderate.
"But there were some one-time events there, too. Rent and homeowner costs were down, and there were auto price concessions in April. So we think the inflationary environment will remain as it has been, in the 5% to 5.5% zone, which will not allow the Fed to ease in the immediate future.
"The key to inflation for the rest of the year is in labor costs," Steinberg said. "The employment cost index was up at an annual rate of 5.2% (the highest since 1983) in the first quarter and will probably stay at that rate for the rest of the year. That puts a floor under the inflation rate."
David Wyss of Data Resources, a research firm in Lexington, Mass., while welcoming the 0.2% core rate as "better than we had expected in its details," also warned that higher wage settlements could well drive inflation higher later this year.
He warned that such events as a recently settled strike at Bethlehem Steel plants and the steep wage demands of teachers striking in Los Angeles could point the way toward some unpleasant inflationary surprises later in the year.
Donald Ratajczak of the economic forecasting project at Georgia State University, a specialist in price movements, warned that only about two-thirds of the expected second-quarter bubble in energy costs showed up in the April consumer price report.
He predicted a 2.5% jump in energy prices generally in May and a 5.5% boost in gasoline prices. He also noted that the unusual April drop in homeowner costs (down 3.6%) and in the estimated cost of rent or rent equivalents (down 0.7%) may merely have corrected a statistical error for March, when both those categories showed unusual increases.
"If you do all the adjustments, take out the energy and the housing and the autos, you end up with an annual rate of 5% or a bit higher," Ratajczak said. "It's not exploding inflation, but it is an inflation problem."
Before seasonal adjustment, consumer prices in the Los Angeles-Anaheim-Long Beach area increased by 0.8%, compared to an unadjusted 0.7% in cities nationwide.
Before adjustment, the consumer price index stood at 123.1, up 0.8 points from March. That means that goods and services that cost $100 in December, 1982, cost $123.10 in April.