Inflation hits 2-1/2 year high, seen peaking
WASHINGTON | (Reuters) - Gasoline and food prices hoisted U.S. inflation to a 2-1/2-year high in April, but there was little sign of a broader pick-up in consumer prices that would trouble the Federal Reserve.The pace of food and fuel price rises slowed considerably from March, suggesting inflation pressures may be peaking.That, along with a strengthening labor market, lifted the spirits of consumers who have been battered by rising prices.But the rapid rise in inflation has left wages trailing and many Americans are worried about the squeeze on their personal finances, a survey found.Consumer prices rose 0.4 percent in April, slowing from 0.5 percent in March, the Labor Department said on Friday.The rise, which was in line with economists' expectations, took the year-on-year inflation reading to 3.2 percent, the highest since October 2008.Stripping out volatile food and energy costs, core CPI rose a mild 0.2 percent from March. The 12-month increase at 1.3 percent was at its highest level since February 2010. The Fed, however, would like to see that closer to 2 percent over time."The report raises no red flags for the Fed of an unruly inflationary dynamic taking hold," said Julia Coronado, North America chief economist at BNP Paribas in New York."Surging headline inflation has taken some steam out of economic momentum of late which would leave the Fed more inclined to be cautious in removing accommodation."Year-on-year core CPI has risen 0.7 percentage point from a record low of 0.6 percent in October, an increase Fed officials will keep an eye on as they decide when to tighten policy.Separately, the Thomson Reuters/University of Michigan's index of consumer sentiment rose to 72.4 from 69.8 in April. The surveys also showed consumers were less worried about inflation over the next year.CONSUMERS SQUEEZEDThe stiff rise in food and energy costs in recent months has squeezed consumers, who are seeing only tepid wage gains.Average hourly earnings, when adjusted for inflation, fell 0.3 percent in April -- declining for a third straight month. In the 12 months to April, they dropped 1.2 percent.The sentiment survey showed a quarter of respondents reported declining incomes, and almost a third said rising prices had lowered their living standards.Many Americans are cutting spending to cope with rising prices.John Bedell, 38, an architect living in Boston said he often brings his lunch to work and borrows movies and books from a public library rather than buy them. He also recently cut his cable package.Kathy Wismer, a 45-year-old equine enthusiast from Baldwin City, Kansas, has parked her horse trailer and pickup truck in the barn. She said she and her husband are planning to save more this summer ahead of what may be harder times ahead."I think the economy is turning around, but I don't think there is any quick fix," she said.Data on Thursday showed high food and energy prices diverted spending from other areas in April as retail sales posted their smallest rise in nine months. For details seeLast month, rising costs for housing, cars and trucks boosted core CPI. Prices for new vehicles rose 0.7 percent, reflecting lean inventories as a shortage of parts following the earthquake and tsunami in Japan disrupts production.U.S. Treasury debt prices rose on the inflation report, while stocks fell. Strong growth data in Germany and France boosted the euro against the dollar.The U.S. central bank has pumped massive amounts of money into the economy, in part to prevent a damaging downward spiral in prices. Its focus is now shifting to how best to eventually withdraw some of the monetary stimulus.With commodity prices dropping sharply in recent days, economists said headline inflation was close to peaking, which would lessen the risk of broader price pressures building."Given what has gone on with commodity prices lately it's likely to represent a peaking in near-term inflation pressures. You are going to see a rollover in the coming months," said Brian Levitt, an economist at OppenheimerFunds in New York."Inflation pressures as a whole throughout the economy remain modest."Gasoline prices accounted for almost half of the rise in overall consumer inflation last month, advancing 3.3 percent.The pace of increase, however, slowed from March's 5.6 percent rise and further declines are likely. U.S. gasoline futures posted their sharpest daily drop since September 2008 on Wednesday. They edged up on Friday.
Inflation hits 2-1/2 year high, seen peaking
Americans find simple ways to tighten their belts
(Reuters) - Americans squeezed by high gasoline prices and rising costs for food and other essentials are resorting to simple but effective steps to stretch their paychecks a bit further.
Cutting back on driving is an obvious option but even non-drivers have seen living costs rise as businesses try to pass on the higher prices of energy and raw materials.
Data on Friday showed gasoline and food prices pushed U.S. inflation to a 2-1/2 year high of 3.2 percent in the 12-months to April.
Inflation is a lot lower when food and energy are stripped out of the equation, the preferred way of looking at price growth for policymakers at the Federal Reserve. But stripping them out of a household budget is not so easy.
John Bedell, 38, an architect who lives in Boston, said he has been bringing his lunch to work more often to save money.
Bedell has also trimmed his entertainment expenses -- making cuts to his cable television package and borrowing books and movies from the public library instead of buying them.
Kim Williams of Boston is brown-bagging her lunch more often too. "I don't shop as much as I used to. I try not to eat out as much, and I try to cook," said Williams, 47, who works in customer service.
The automobile service club AAA on Friday put the national average price for regular gasoline at $3.98 per gallon, up from $3.81 a month ago and 38 percent higher than a year ago.
Drivers whose cars demand premium gas are coughing up $4.25 per gallon on average.
Gasoline and food prices prices were not the only headache for consumers last month. Prices for new vehicles rose and increases for used cars and trucks were even steeper.
Americans also had to dig deeper to pay for medical care last month and prices for apparel and furniture turned higher.
PARK THE TRUCK IN THE BARN
Many Americans have no choice but to drive to work. Still, some trips have to be canceled, whether to the shopping mall or to see friends and relatives.
"I'm driving less. You don't get to travel to see extended family as much," said Dave Bennett, 51, of Waltham, Massachusetts. "You can't really do much about commuting costs."
Bennett takes the train to his job in the financial services industry but drives from his home to the station. He expects the price of his rail pass to jump as well.
In Kansas, in the U.S. Midwest, average gasoline prices are a little below the national average, at $3.89 per gallon, according to AAA.
That is little comfort to equine enthusiast and freelance photographer Kathy Wismer, 45, of Baldwin City, Kansas.
It costs Wismer some $90 to fill the tank of her pickup truck to haul a horse trailer to and from events.
"The truck is pretty much parked in the barn now," she said. Instead, she and her husband, an air traffic controller, drive their gas-sipping subcompact car whenever possible.
Kyle Robinson, who owns a landscaping company, and his wife, Rebecca, a nurse, were vacationing in San Francisco on Friday. The Connecticut couple said the trip was possible only because they are staying with friends to cut costs.
"Between oil and food and gas, everyday expenses are much harder," said Rebecca, 37.
The Robinsons show the conundrum the new thriftiness poses for the U.S. economy where small businesses are traditionally the engine for job growth.
Every worker who makes his own lunch could mean a lost sale for a local sandwich shop. Every homeowner forced to cut her own grass means lost business for a lawn service.
"Not as many people are spending money, it seems," said Kyle Robinson, 26. That means "more hours by myself, fewer employees," he said.
(Reporting by Lauren Keiper, additional reporting by Peter Henderson in San Francisco and Carey Gillam in Kansas City, writing by Ros Krasny; Editing by Kenneth Barry)