Rising food and gas costs push up consumer prices

Consumers paid more for gas and food in April, lifting inflation to its highest level in two and a half years. But inflationary pressures have begun to ease this month, and analysts say some prices could taper off by summer.

The Consumer Price Index increased 0.4 percent in April, the Labor Department said. In the past 12 months, prices have risen 3.2 percent. That's the biggest year-over-year gain since November 2007 through October 2008.

Excluding volatile food and energy, which account for about 20 percent of the CPI, the index increased 0.2 percent in April and has risen 1.3 percent over the past 12 months. That's still below the level the Federal Reserve considers a healthy pace of inflation.

Economists like to study costs outside food and energy -- the so-called "core" prices -- to see long-term trends. Food and energy can rise or fall sharply from month to month.

The cost of new and used cars, clothing and medical care all increased, pushing up the core index. Car prices likely increased because of temporary parts shortages caused by the March 11 earthquake and tsunami in Japan. Most other prices were subdued.

Oil has fallen from $114 a barrel earlier this month to about $100 Friday. Prices of corn and other grains have also declined in recent days

Economists say gas and food prices should fall later this year. High prices are likely slowing the economy this quarter. But growth should increase in the second half of this year, they say.

"With commodity prices now dropping back, it looks like inflation is close to peaking," said Paul Ashworth, chief U.S. economist for Capital Economics. He says year-over-year inflation should climb to 3.5 percent before dropping in the second half of the year.

Cary Leahey, an economist at Decision Economics, said yearly inflation figures should start to decline in the next several months, although core prices should continue to rise. The Federal Reserve won't need to start raising interest rates until next year to keep inflation in check, he said.

The price of gasoline rose 3.3 percent in April. That accounted for half of last month's increase. Gas has risen more than 33 percent in the past year because of demand in fast-growing developing countries and political turmoil in the Middle East. Gasoline is averaging $3.98 a gallon nationwide, up $1.09 from last year.

Food prices increased 0.4 percent last month. That was half the previous month's increase, which was the largest in nearly three years. The price of fresh vegetables fell. Dairy, meat, fish and eggs all rose.

Federal Reserve Chairman Ben Bernanke has said that the impact of higher food and gas prices should be temporary. The central bank has also said it is watching closely for any signs of inflation.

Last October, the core index had risen only 0.6 percent in a year, and the Fed was more concerned about falling prices. That increase was the smallest for 12 months since the core index was created in 1957.