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Wednesday May 16 12:15 PM ET
Inflation Milder Than Expected in April

By Caren Bohan

WASHINGTON (Reuters) - U.S. consumer prices rose more moderately than expected in April, helping to give the Federal Reserve (news - web sites) some leeway in its aggressive interest-rate cutting campaign.

The Labor Department (news - web sites) said on Wednesday that the Consumer Price Index (news - web sites), the main U.S. inflation gauge, rose 0.3 percent last month after a 0.1 percent gain in March.

The closely watched core CPI, which strips out food and energy costs, rose 0.2 percent in April following a matching increase in the prior month.

``I think inflation is still on the back burner for the Fed,'' said Sung Won Sohn, chief economist with Wells Fargo Bank. ``I think the inflation pressure is minimal at this point, especially if you take out energy costs.''

U.S. economists in a Reuters survey had expected the overall CPI to climb 0.4 percent and the core rate to rise 0.2 percent.

ONE LESS WORRY

The inflation reading gives the U.S. central bank one less thing to worry about after a spree of rate reductions that has taken overnight lending rates down 2-1/2 percentage points since the beginning of this year.

U.S. 30-year Treasury bonds gained a full point, reversing four days of losses as the softer-than-expected CPI report eased worries the Federal Reserve's steep interest rate cuts this year could fuel future inflation.

``Certainly there has been a large fear in the bond market of inflation heating up. So this certainly calmed the markets down quite a bit,'' said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co. in Seattle.

Aiming to head off a recession in the struggling U.S. economy, the Fed on Tuesday cut rates for the fifth time in as many months and signaled that it stood ready to ease borrowing costs again if the economy shows signs of further weakening.

Despite gloomy news about the economy lately, at least one key sector, housing, continues to do well.

A report from the Commerce Department (news - web sites), also released on Wednesday, showed that ground-breaking for new single family homes, town homes and apartments rose 1.5 percent to a seasonally adjusted rate of 1.609 million units after posting a drop of 2.3 percent in March, when the revised estimate was 1.586 million.

While starts were fairly strong, they remained 1.0 percent below the level seen in April of last year, when the rate was 1.626 million.

Housing starts exceeded analysts' expectations. Forecasters polled by Reuters predicted April starts would come in at 1.593 million units.

Apart from housing, though, the business sector is struggling with falling profits, which has prompted a lot of layoffs. Many economists worry that rising unemployment will make consumers shut their wallets, exacerbating the slowdown.

FED HAD NO INKLING

-- Anonymous, May 16, 2001

Answers

NO QUESTION. **MUST BE .....BUSH's FAULT.

-- Anonymous, May 16, 2001

The closely watched core CPI, which strips out food and energy costs, rose 0.2 percent in April following a matching increase in the prior month.

WOW! Them rugs ya bought only went up 0.2 percent, yippy! What damn fine luck! Course getting the darn thing home has risen 20-30-40% but look at the damn deal you pick-up on the rugs my friends! So what is right!

-- Anonymous, May 17, 2001