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U.S. consumer prices flat
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May 16, 2000: 9:12 a.m. ET
April consumer prices unchanged, but rise 0.2% excluding food and energy
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - Retail prices held steady in April as energy prices fell sharply, the government reported Tuesday, offering some indication to investors that Federal Reserve policy makers may refrain from raising interest rates aggressively to keep inflation at bay.
 The Consumer Price Index, the government's main inflation gauge, was unchanged in April, the Labor Department said, below the 0.1 percent increase economists had expected and the 0.7 percent increase registered in March. Excluding volatile food and energy costs, prices rose 0.2 percent, matching forecasts and below the 0.4 percent March gain.
Stocks and bonds climbed in the wake of the report as investors' hopes were raised that Fed policy makers will refrain from lifting short-term rates after Tuesday's expected hike. An announcement from the Fed's policy-making arm, the Federal Open Market Committee, is expected later Tuesday afternoon.
"There's still a lot more inflation fear than there is inflation," said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis. "There is still concern that the economy could generate inflation at some point but it still doesn't seem to be doing that. The Fed doesn't need to act more aggressively, but it doesn't mean that they won't."
Waiting for the Fed
Most analysts and investors expect the Fed to raise short-term rates by a half percentage point Tuesday in a bid to slow the booming U.S. economy and ensure that inflation remains contained. While prices overall were flat compared with March, they advanced at a 3 percent pace from April 1999.
 Even so, the latest numbers offered some hope to investors that the Fed's series of rate increases, which began almost a year ago, may come to an end. The U.S. economy advanced at a 5.4 percent pace in the first quarter, below the scorching 7.3 percent advance posted in the fourth quarter of 1999, but still above what most analysts and Fed officials deem a comfortable, non-inflationary rate of growth.
While it's no secret that prices for some goods and services are on the rise, prices for other products -- particularly things such as electronic goods, wireless phones, airfares, home furnishings and other durable goods remain stable, and in some cases are on the decline.
Indeed, the U.S. job market remains white hot, spurring employers to pay higher wages and more-diversified benefits to their workers to keep them from leaving. And those workers, armed with bigger paychecks and pleased with the gains they've made investing in stocks and real estate, have continued to spend in the face of rising rates -- something that has begun to give some retailers the green light to begin lifting prices.
What's a little inflation?
With all that in mind, the fact that prices for some items and services are rising at a moderate pace isn't such bad news, Charles Lieberman, chief economist with First Institutional Securities, told CNNfn's Before Hours. And April's numbers should serve to allay Fed officials' concerns about inflation picking up even more in the months ahead. (450KB WAV) (450KB AIFF)
 Much of last month's reading came from a notable decline in energy prices. Energy prices fell 1.9 percent in April after rising 4.9 percent the month before. Transportation costs fell 0.7 percent, the largest drop since May 1997. Other declines included a 0.5 percent drop in airfares and a 0.5 percent decline in clothing prices.
To be sure, most economists expect that it will take another round of monthly numbers on growth and inflation to convince Fed officials that they definitely don't need to rein in the economy any more with more rate increases.
"We seriously doubt this report will dissuade the Fed from a 50-basis-point hike today," said David Orr, chief economist with First Union National Bank. "But if the May 'core' report is also benign and May retail sales are only moderate, that could cause the Fed to take a pass at the June 28 meeting."
Separately, the Commerce Department reported that housing starts rose 2.8 percent to a 1.66-million-unit rate last month, slightly above economists' forecasts and partly reversing March's 11.2 percent drop. The number of building permits issued, meantime, declined 1.4 percent last month to 1.57 million units after falling 3.9 percent the month before. 
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