Inflation reading less than forecasts

NEW YORK (CNNMoney.com) -- Prices rose a bit less than forecast in April, according to the government's key inflation report Tuesday, but a closely watched reading showed a pick-up in prices outside of food and energy.

The Consumer Price Index showed prices at the retail level rose 0.4 percent in the month, compared with the 0.5 percent rise in March. Economists surveyed by Briefing.com had forecast a 0.6 percent increase in the CPI.

Inflation adjuster

How much would: $ in: be worth today? Today's dollars: $

The more closely watched core CPI, which strips out the volatile prices of food and energy, rose 0.2 percent, after edging up only 0.1 percent in March. The reading was in line with economists' forecasts.

While the rate of increase in the core CPI picked up a bit in the April report, the 12-month change in core CPI actually declined to a 2.3 percent rise from the 2.5 percent gain in March. The 12-month change in core CPI is now at the lowest level since April of last year. And it is also closer to the range of a 1 to 2 percent increase that is generally believed to be the Federal Reserve's comfort zone for that price measure.

"It's good news for the Fed, but it's not sufficient to have them cut rates," said Jeoff Hall, chief U.S. economist for Thomson Financial. "It's heading down, but it's not near enough to let them get comfortable. I think it's far too early to declare victory on inflation."

In its statement last week after it kept interest rates unchanged once again, the Fed said that "core inflation remains somewhat elevated" and that the central bank's "predominant policy concern remains the risk that inflation will fail to moderate as expected."

The decline in the 12-month core CPI measure, and the overall CPI reading below forecasts, helped lift stocks slightly in early trading, after stock futures had been pointing lower ahead of the report on weak earnings and guidance from Home Depot (Charts, Fortune 500) and Wal-Mart Stores (Charts, Fortune 500).

The CPI report showed energy prices jumped 2.4 percent in April, but that's far less than the 5.9 percent spike in prices in that sector in the March report. Food prices edged up 0.4 percent, slightly higher than the previous month's 0.3 percent increase.

Among core items, clothing prices showed a decline, as retailers cut prices in the face of weak April sales. But Hall said clothing makes up far too little of household spending to have much impact on overall CPI.