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Instant View: Consumer prices rise on food and gasoline

NEW YORK (Reuters) - U.S. consumer prices rose as expected in April on higher food and energy prices, but continued to exhibit little sign of a broader pick-up inflation that would trouble the Federal Reserve.

KEY POINTS:

* The Labor Department said its Consumer Price Index increased 0.4 percent after rising 0.5 percent in March. Economists polled by Reuters had expected a 0.4 percent rise last month. * Core CPI -- excluding food and energy - gained 0.2 percent after edging up 0.1 percent in March and in line with economists’ expectations. * The monthly increase in core CPI has been bouncing around 0.1 percent and 0.2 percent since November.

COMMENTS:

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:

“With energy prices 18.6 percent above their year ago level, core consumer prices are 1.3 percent above their year ago level and its trend year-over-year rate has been slowly rising. Strengthening final demands have eliminated any risk of deflation but still ample slack in the economy, ongoing financial deleveraging, fiscal austerity, and increased global uncertainty should help restrain any acceleration in inflation.”

DANA SAPORTA, ECONOMIST, CREDIT SUISSE, NEW YORK

“With some of the supply disruptions in the auto industry, the need for automakers to provide incentives has diminished a bit so we might see some upward pressure in the core coming from the auto sector.

“Core is up for the year. This is not enough to prompt an immediate response from the Federal Reserve but they’re certainly watching this. It is still our view that when QE2 ends in June the next move from the Fed will be a tightening move.”

JAMES O’SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK

“The real story is that core is edging up. There is a clear acceleration in the core number in recent months. The bottom line is moving back up where the Fed would want to see it. Clearly the core number has moved away from the deflation zone in the last six months. It’s just a matter of time when the Fed will tighten.

“Real hourly earnings have crimped spending real consumer spending, which rose at a 2.7 annualized rate in the first quarter. Higher gasoline prices were offset by a drop in payroll tax. We should get some relief in real spending from lower gasoline prices.”

NICHOLAS COLAS, CHIEF MARKET STRATEGIST, THE CONVERGEX GROUP, NEW YORK

“People are happy inflation data is broadly in line with expectations. There’s been a lot of concern about what commodity prices were going to do to inflation.

“This is not a great number but still in line with prior expectations.”

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

“Before rounding the core rose by 0.1854 percent, a number that can still be seen as acceptably subdued, even if there has been some acceleration even in core CPI from the very low late 2010 levels. Food and energy remain firm but were less so in April, and April should prove a short term peak in energy... This is the 5th straight month that overall CPI has outpaced the core but that string should break in May given a peaking in oil and continued negative seasonal adjustments. The yr/yr headline of 3.2 percent is the highest since October 2008, but the acceleration is probably now close to a short term peak. Fading worries about headline inflation will put focus on the core.”

MARKET REACTION:

STOCKS: U.S. stock index futures edge higher.

BONDS: U.S. bond prices edge higher.

FOREX: The dollar extends losses versus the euro.

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