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April Inflation Rate Up 0.4 Percent With AM-Economy Rdp; a version on general wires.

May 21, 1985

WASHINGTON (AP) _ Retail prices continued a lazy upward spiral last month, and analysts said the trend showed that policymakers are right to be more concerned with lagging economic growth than with a new burst of inflation.

The April Consumer Price Index issued Tuesday by the Labor Department showed a 0.4 percent gain - with the first food price drop in 11 months tempering another sharp jump in gasoline prices.

Retail prices are 3.7 percent above what they were this time last year. For the first four months of 1985, prices have risen at a 4.2 percent annual clip.

The new price index, coupled with a Commerce Department report showing the economy grew at only 0.7 percent during the first three months of the year, prompted analysts to discount inflation as a driving influence on government policy - at least for the rest of 1985.

″The combination of the reports will certainly validate the correctness of the Fed easing (interest rates) at this stage,″ said David Cross, senior economist for Chase Econometrics in Bala Cynwyd, Pa. ″The economy is weak and inflation is going nowhere.″

Rob Wescott, senior economist at Wharton Econometrics in Philadelphia, said: ″It still amazes me that you read so many comments of very high inflationary expectations. I just do not think it is going to happen.″

Food prices, flat in March, declined by 0.2 percent last month - the first drop since May, when they fell by the same percentage. Grocery prices fell 0.4 percent, but that was offset somewhat by a 0.3 percent in restaurant meal prices.

Gasoline costs rose 3.1 percent in April but analysts say the sharp fuel price jumps of the past two months - 6.8 percent since February - are largely a correction from unusually low winter levels and are about ready to play themselves out.

Prior to a big March increase of 0.5 percent, which also had been attributed almost entirely to fuel costs, the CPI had risen 0.2 percent in January and 0.3 percent in February.

Excluding energy and food, the CPI was up 0.3 percent last month.

The Labor Department provided these additional details on seasonally adjusted consumer price activity for April:

-Housing costs, which include utilities, rose 0.4 percent after a 0.3 percent rise in March.

-Transportation costs, which include gasoline, were up 0.8 percent in April after a 1.3 percent gain in March. Rising fuel prices were partially offset by unchanged new car costs and a 0.3 percent decline in used car prices. And automobile financing charges fell for the fifth straight month, down 0.6 percent.

-Medical care costs rose 0.6 percent last month after a 0.8 percent increase in March.

-Clothing prices held steady after increases of 0.5 percent and 0.9 percent in February and March respectively.

-Entertainment costs rose 0.3 percent.

If last month’s 0.4 percent increase held steady for 12 straight months, the yearly advance would be 4.6 percent.

In all, the unadjusted Consumer Price Index stood at 320.1 in April, meaning that goods costing $10 in 1967 would have cost $32.01 last month.

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