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Government Says Inflation Eased in April

But high food prices expected to linger for 2-3 years, White House warns

May 14, 2008

The U.S. Labor Department says the Consumer Price Index, the official measure of costs at the retail level, increased only slightly in April, rising 0.2 percent. Excluding food and energy costs – the two highest components – the index was up just 0.1 percent.

Economists say the lower than expected numbers may mask some inflationary pressures that exist within the economy. They note that both wholesalers and retailers have often absorbed some of the higher costs out of reluctance to increase prices to the point of driving away customers.

The latest report showed energy prices were unchanged after rising nearly two percent in March. However, the numbers don't reflect the latest spike in oil prices, which occurred this month, sending oil over $124 a barrel and gasoline over $4 a gallon in some areas. In other words, the April numbers don't reflect what consumers are now paying at the pump.

Consumers paid more for new cars and trucks but the cost of air travel, inexplicably, went down 0.5 percent. Economists say airline tickets should resume their climb once the summer travel season takes off and airlines are forced the pass on the higher costs of jet fuel.

Food prices

Consumers are also paying more for food, and those costs were reflected in the April numbers. Food prices jumped nearly an entire percentage point, the most in nearly two decades. Consumers paid sharply higher costs in April for pork products and fresh fruit.

We're likely to continue paying higher food prices for at least a few years, according to Edward Lazear, chairman of President Bush's Council of Economic Advisors.

It will take two to three years for the world to replenish food stocks, he said. While prices may not continue to rise, they're not likely to come down either, he warned.

Disappointing harvests, surging demand in developing countries like China and other factors have sent global commodity and food prices skyrocketing over the last year.

Also driving up food prices is biofuel production, which jumped 43 percent in the year through March. The White House experts underscored that they did not think alternative fuels like ethanol truly play a big role in higher food costs.

"Those who are arguing that the president's increase in the (renewable fuels standard) is contributing to high food prices are incorrect," Keith Hennessey, director of the National Economic Council, said in a Reuters interview.

But the American Farm Bureau Federation contends that biofuel use accounts for up to 30 percent of the food price surge. About a third of the U.S. corn crop is expected to go to making ethanol in the next year, about 4 billion bushels, up a third from last year.

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