· Less food & energy, consumer prices also were under control last month and posted just a 0.1% uptick. That was half the Consensus forecast for a 0.2% gain. The year-to-year rise of 2.3% was equal to last year's full year gain and down from the 2.5% increase during 2006.

· Food & beverage prices provided lift to last month's gain in the CPI with a 0.9% increase. The year-to-year increase of 5.0% was the strongest since 1990. Prices for meats poultry & fish broke out of a several month slumber and rose 0.9% (3.7% y/y). Showing real strength, however, were prices for cereal & bakery products which increased another 1.4%. The y/y rise in these prices of 8.9% was the strongest since 1989. Dairy product prices also were quite firm and rose 0.7%. They surged 11.8% year-to-year.

· Energy prices were under control last month and fell slightly. The weakness was due to a surprising 2.0% (+20.7% y/y) decline in seasonally adjusted gasoline prices. (Not seasonally adjusted gas prices rose 5.6% m/m in April and they are up another 6.1% so far in May.) Conversely, fuel oil prices last month surged 3.6% (42.8% y/y) while natural gas & electricity prices also were strong. They posted a 2.5% increase (6.7% y/y).

· Core goods prices were unchanged following two consecutive months of 0.1% decline. Lower prices for new & used motor vehicles led the weakness with a 0.2% decline (-0.3% y/y). Prices for household furnishings & operations also fell by 0.1% (-0.1% y/y) after their brief 0.5% March increase. Apparel prices showed the only one month strength with a 0.5% (-0.6% y/y) increase that was the strongest rise since last November.

· Core services prices  also were under control and ticked up just 0.1%. Shelter prices, which constitute 33% of the total CPI, for the second month rose just 0.1% (2.6% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.2% (2.6% y/y) and rents rose 0.3% (3.6% y/y). The downside to shelter costs was provided by lodging away from home where prices fell 1.9% (+1.1% y/y). Medical care services prices increased 0.3% (4.7% y/y) and tuition costs surged 0.6% (5.6% y/y). Prices for public transportation fell 0.4% (7.3% y/y) after the 2.5% March rise.

· Are Inflation Targets Good Inflation Forecasts? from the Federal Reserve Bank of Chicago is available here.

· Has the Behavior of Inflation and Long-Term Inflation Expectations Changed? from the Federal Reserve Bank of Kansas City can be found here.

Consumer Price Index (%)

April Y/Y 

2006

2005

Total 

3.9

3.2

3.4

Total less Food & Energy

2.3

2.5

2.2

  Goods less Food & Energy

0.1

0.2

0.5

    Services less Energy

3.1

3.4

2.8

  Energy

15.5

11.0

17.0

  Food & Beverages

5.0

2.3

2.5

Chained CPI: Total (NSA) 

3.5

2.9

2.9

 Total less Food & Energy 

1.9

2.2

1.9