Consumer prices rose 0.2% in April 2008, the U.S. Labor Department announced Wednesday, a statistic below the consensus estimate as oil prices moderated during month, offsetting rising food prices.

Economists surveyed by Bloomberg News had expected April 2008 consumer prices to increase 0.3%. Consumer prices increased 0.3% in March 2008.

Also, the core rate, which excludes the frequently-volatile food and energy component, rose just 0.2% in April 2008, inline with the Bloomberg News survey 0.2% consensus estimate.

On a year-over-year basis, consumer prices have risen 3.9% and the core rate has risen 2.3%. The core rate remains slightly above U.S. Federal Reserve's 'comfort zone' for inflation. The Fed uses the core CPI rate as one of its primary gauges of consumer-based inflation.

April 2008 CPI: 'Surprisingly tame'

Economist David H. Wang said the April 2008 CPI report was a bit of a surprise -- one that may help the U.S. economy. "The report was surprisingly tame. We do see rising food costs, but the energy component was not as bad as expected," Wang said. "Also, core year-over-year inflation is not too bad, and the Fed [U.S. Federal Reserve] will look favorably upon this, if it remains moderate."

April U.S. import prices rose 1.8%, the U.S. Labor Department announced Tuesday, as petroleum and non-petroleum imports contributed to the rise for the second straight month.

Excluding petroleum/oil, prices increased 1.1%. Economists surveyed by Bloomberg News had expected prices to rise 1.7%. Meanwhile, March 2008 import prices rose a revised 2.9%.

On a year-over-year basis, import prices are up 15.6% -- a level that historically indicates that U.S. consumer price inflation will trend higher due to prices pressure from foreign goods/services.

Economist David H. Wang said the report contained few surprises. "The report continues to display the consequence of record-high oil prices, which are boosting inflation just about across the price spectrum," Wang said.

U.S. Federal Reserve officials, economists, executives, analysts and others closely monitor changes in import and export prices because they provide reads on inflation in the U.S. and internationally. Furthermore, the data frequently has a direct impact on the bond and the currency markets.

Growth is slowing in all regions of the world, and inflation is rising, but the International Monetary Fund's No. 2 person in charge says a repeat of the 1970s stagflation period isn't likely.

IMF First Deputy Managing Director John Lipsky said the "inflation speed-up must be taken seriously as it creates potentially significant challenges to economic stability," Bloomberg News reported Thursday. However, Lipsky added that a return to 1970s-style stagflation isn't likely, but it cannot be totally ruled out.

Oil, commodity-rooted inflation

Further, Lipsky underscored that the current inflation rise is being driven by a fundamental increase in demand for commodities, primarily oil, and to a lesser extent by supply constraints around the world, Thomson Financial reported Thursday via Forbes.com. Hence, the recent price increases are likely to prove finite, Lipsky added, unless these items keep rising more rapidly than other items.

Economist David H. Wang told BloggingStocks Thursday he agreed with Lipsky's categorization of the most-recent rise in inflation but added that government subsidies may prevent a pullback in commodity prices, especially oil. Classic economic theory holds that as the price of a good rises, people will use less of it. However, governments in China, Venezuela and the Middle East, among other nations, subsidize gasoline/fuel, lowering its cost, which discourages conservation, Wang said. The United States does not subsidize motor fuel at the federal level, but individual states do subsidize heating oil/natural gas for low-income citizens.

Consumer spending increased 0.4%, but rose just a scant 0.1% after adjusting for inflation, in March 2008, the U.S. Commerce Department announced Thursday, as higher prices eroded income gains for Americans.

Further, it was the fourth straight month of sub-par real consumer demand.

Economists surveyed by Bloomberg News had expected March 2008 consumer spending to increase 0.3%.

Meanwhile, inflation accelerated in March 2008, with consumer prices increasing 0.3%. Core prices, which exclude food and energy, also increased just 0.2%. For the past 12 months, consumer prices have increased 3.2%, while the core rate has increased 2.1%, or just above the U.S. Federal Reserve's inflation ceiling, commonly referred to as the Fed's 'comfort zone.'

Inflation, public enemy No. 1 in the 1970s in the United States, appears to be regaining its former title in the first decade of the 21st century.

But is it here to stay? That depends on the data you're looking at, most economists agree. U.S. inflation is trending higher, but whether it is more structural or cyclical (simply a product of current demand conditions), is the focus of debate in economics circles.

Structural view

Economist Peter Dawson says structural changes are occurring that will keep inflation well above the U.S. Federal Reserve's 2-2.5% comfort zone for years. Those changes include strong demand for commodities in both emerging and developed economies, the U.S. budget deficit and trade deficit, and the weak U.S. dollar.

"What we're seeing today, in my view, is a new economic age. It's not a cliché. We have more than half the world developing at the same time and it has and will continue to place pressure on commodity prices, oil being the first, but now grains / food stuffs and minerals following close behind," Dawson said. "This is creating a whole new cost layer not only in the U.S., but around the world."

A classic market theorist, Dawson does expect higher prices to do what they're supposed to do, eventually: reduce demand. However, with regard to grains, it's difficult to predict the level at which demand will ebb, due to government subsidies. Meanwhile, oil, he said, "is reaching its zenith, probably at $125 per barrel." Further, Dawson believes a sustained $100 oil price will "propel the development of cheaper, alternative energy sources in the next decade" that will enable sufficient global economic growth. But until commodity demand cools and new energy forms arise, you can expect above-average inflation, both in the U.S. and globally.

That ECB trial balloon concerning a possible interest rate increase -- as opposed to an interest rate cut -- may end up being more than just a trial balloon, if Europe's inflation ramps up.

A day after ECB officials signaled that interest rates may have to rise to stem above-expectation inflation on the continent, Europe's service sector growth unexpectedly accelerated in April 2008, Bloomberg News reported Wednesday, suggesting that economic activity may be stronger than initial 2008 euro-zone forecasts.

Europe's service sector index as measured by the Royal Bank of Scotland, which includes a wide swath of industries from airline to financial services, rose to 51.8 in April 2008 from 51.6 in March 2008, Bloomberg News reported. A reading above 50 indicates expansion.

London-based economist Mark Chandler told BloggingStocks Wednesday that the unanticipated growth, combined with other positive factors, should forestall any ECB rate cut in the near future, but will not necessarily lead to an outright rate increase.

"Right now there still are a number of positives that suggest continued euro-zone growth. Employment growth is good, wage growth is adequate, and business-to-business spending is holding up fairly well," Chandler said. "That suggests adequate growth heading into the third quarter, and when you add rising inflation, it's a different economic picture than what you're seeing in America right now."

China's economy grew 10.6% in Q1 2008, the Xinhua News Agency reported Wednesday, citing National Bureau of Statistics research, a pace well above what Chinese Government's ceiling for 2008 GDP growth.

Further consumer prices increased at annualized rate of 8.3% during March 2008, Xinhua reported, as China's infrastructure development and consumer demand for goods/service continued to place upward pressure on commodities and retail prices. China's GDP grew 11.9% in 2007.

In Q1 2008, industrial production jumped 16.4%, while investment in fixed assets, a category that covers categories from housing to new factory equipment, surged 24.6%.

U.S. inflation at the retail level rose 0.3% in March, after almost no increase in February, the US Department of Labor reported.

Meanwhile, the core CPI rate, which excludes the volatile food and energy components, rose 0.2%.

Economists surveyed by Bloomberg News had expected the CPI and CPI core rates to increase by 0.3% and 0.2%, respectively in March 2008.

In March, energy prices increased 1.9%, medical care rose 0.4%, food prices rose 0.2%, clothing increased 0.2%, and education and communications costs increased 0.2%.

For the 12 months from March 2007 to March 2008, prices have increased 4.0%, compared with a year-over-year gain of 4.0% from February 2007 to February 2008. The core rate increased 2.4% from March 2007 to March 2008, after a 2.3 percent year- over-year gain from February 2007-February 2008.

U.S. consumer confidence in early April 2008 plunged to its lowest level in 26 years, suggesting American adults are becoming more concerned about the near-term health of the U.S. economy as it slides into its first recession in six years.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 63.2 in April 2008 from 69.5 in March 2008. It was the index's lowest reading since it fell to 62.0 in March 1982.

Economists surveyed by Bloomberg News had predicted that the April 2008 index would fall to 69.

Meanwhile, the index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 53.4 in April 2008 from 60.1 in March 2008. It was the expectations index's lowest reading since November 1990, Reuters reported Friday.

'A really bad number'

Economist Peter Dawson, who did not participate in the survey, told BloggingStocks Friday there's no way to sugarcoat the latest consumer sentiment reading. "It's a really bad number. Just awful. Consumers are expressing serious concern about high gasoline, oil and food prices, the threat of job layoffs, and the general the state of the economy," Dawson said. "Given that consumer spending a represents about two-thirds of economic activity, it doesn't bode well for the economic recovery timetable."

With the above in mind, Dawson said those who expect a U.S. economic recovery to start as early as Q3 2008 "are at the extremely optimistic end of the recovery spectrum."

A surge in imported oil prices pushed March 2008 import prices up 2.8%, the largest increase in four months, the U.S. Labor Department announced Friday.

Economists surveyed by Bloomberg News had expected March 2008 import prices to rise 1.8%. Meanwhile, March 2008 export prices rose 1.5%.

On a year-over-year basis, import prices are up almost 15% -- a level that historically indicates that U.S. consumer price inflation will trend higher, due to price pressure from foreign goods/services.

U.S. Federal Reserve officials, economists, executives, analysts and others closely monitor changes in import and export prices because they provide a read on inflation in the U.S. and internationally. Furthermore, the data frequently has a direct impact on the bond and the currency markets.

Imported oil prices rocked 9.1% in March 2008, natural gas jumped 7.7%, and feeds/foods/beverages increased 2.5%.

Those low-cost goods from Asia are not likely to remain so cheap for U.S. consumers.

Rising inflation in the developing world, especially in Asia, is forcing exporters to increase prices, The New York Times reported Tuesday. This means yet another cost increase is in store for Americans, particularly if they can't find lower-cost substitutes.

Producers' costs increase

Economist David H. Wang told Blogging Stocks Tuesday that exporters in China and throughout Asia have no choice but to increase prices. Wang grew up in China before moving to the United States for graduate school, and now follows China's economy.

"China and the East are experiencing rising costs in just about every operational area, energy, labor, food commodities. If they didn't raise prices they'd lose most of their profit margin," Wang said.

The reality of rising food prices in the United States sometimes registers with consumers in subtle ways.

A shopper who regularly buys groceries at the Stop & Shop in the New York suburb of Larchmont, New York, scans a loaf of bread and suspects that the scanner must have made a mistake because it indicated $2.49 for the loaf.

Then the shopper realizes the scanner didn't make a mistake: that loaf of bread, which was just $1.79 or thereabouts a few months ago, is now more than two bucks -- a 39% price jump.

Whether you realize it or not, food prices are ramping higher, due to surging commodity prices and rising demand for high-protein foods in emerging market countries. Food prices rose 5% in 2007, according to U.S. Department of Agriculture data, the Associated Press reported Tuesday.

Real consumer spending increased a scant 0.1% in February 2008, the U.S. Commerce Department announced Friday, inline with expectations. It was the third straight month of sub-par consumer demand, suggesting that a major component of U.S. economic growth is faltering, which typically leads to a recession.

Meanwhile, inflation eased in January 2008, with consumer prices increasing 0.1%. Core prices, which exclude food and energy, also increased just 0.1%. For the past 12 months, consumer prices have increased 3.4%, while the core rate has increased 2%, or below the U.S. Federal Reserve's inflation ceiling, i.e. within the Fed's 'comfort zone.'

In addition, personal income increased 0.5% in February 2008, with wages and salaries increasing 0.3%, asset income rising 0.2%, while rental income plunging 5.3%. This increase in income was above expectations of 0.3%.

Economic Analysis: One negative and one positive data point for the U.S. economy in the report. The essentially flat 0.1% increase in consumer spending for the third straight month is indicative of a slowdown in consumer demand, which suggests, at minimum, continued economic sluggishness ahead. A bright point: core inflation, running at 2.0%, remains below what the U.S. Federal Reserve considers to be excessive. If the core rate doesn't increase, that should provide additional leeway for the Fed to further lower short-term interest rates, should it choose to do so.

The U.S. economy slowed substantially in Q4 2007 to a 0.6% annualized rate, the U.S. Commerce Department announced Thursday, in its final estimate for the quarter. It was the slowest annualized growth rate since 2002.

Economists surveyed by Bloomberg News had expected the final Q4 2007 GDP statistic to be 0.6%.

For 2007, the U.S. economy grew 2.2%, after adjusting for inflation -- its slowest growth rate in five years. The U.S. economy grew 2.9% in 2006.

In dollar terms, U.S. GDP in 2007 totaled $13.84 trillion, not adjusted for inflation.

In Q4 2007, business inventories increased 6%, exports increased 6.5%, government spending rose 2%, imports fell 1.4% and residential investment plummeted 25.2%.

The report was a virtual carbon-copy of the Commerce Department's earlier estimate for Q4 2007 GDP, save new data on corporate profits, which were revised $37.9 billion lower to a $1.11 trillion annualized rate. Corporate profits after taxes are up 3.3% from a year ago.

Regional central bank cooperation regarding actions and facilities aimed at maintaining financial system liquidity, yes. Regional central bank cooperation regarding interest rates, stay tuned.

The European Central Bank maintained its restrictive monetary policy stance regarding interest rates Wednesday when President Jean-Claude Trichet underscored that the bank is no hurry to lower key, short-term interest rates, Reuters reported.

The euro moved higher versus the dollar Wednesday at mid-day on the news, rising about one cent to $1.5744.

Trichet said price stability remained the ECB's number one concern and that the bank's current interest rate stance would help keep euro-zone inflation under control, Reuters reported. The ECB has kept its key refinance rate at 4.0% for nine months, while its transatlantic counterpart, the U.S. Federal Reserve, has lowered benchmark, short-term interest rates by 300 basis points since September 2007, in an effort to jump-start a U.S. economy stalled by the nation's worst housing slump in more than 20 years.

Further, Trichet turned aside notions that the ECB would soften its definition of price stability, the ceiling for which the bank places at "below but close to the 2% level." The euro-zone posted a 3.3% inflation rate in 2007, a rate Trichet has repeatedly said is too high.