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Despite a 12 percent jump in gasoline costs in April and a 14 percent increase in heating oil, overall inflation appears to be under control. And that's good news for American consumers and investors.
The government's producer price index, a key gauge of wholesale inflation, did rise 0.9 percent last month and is up 4 percent over the past year, according to the Labor Department. But the so-called core PPI, which strips out volatile food and energy costs, increased just 0.1 percent last month. Moreover, it's up only 1.5 percent over the past 12 months—and any reading under 2 percent is generally considered good.
What this means is that even though prices for energy and industrial materials are soaring, manufacturers are not necessarily passing on those costs. And higher energy expenses are not bleeding into the broad economy.
It also means that the Federal Reserve probably will not raise interest rates at its next monetary policy meeting in June. That's certainly what the bond market thinks. After climbing as high as 5.19 percent this week, the yield on the 10-year treasury note fell back to 5.11 percent in early trading Tuesday.
Though the Fed has raised rates 16 straight times in an effort to combat inflationary pressures, it indicated recently that future rate decisions will be based on new economic data.
Should the government's consumer price index report, due out tomorrow, also show benign inflation, the markets will expect an end to the Fed's series of rate hikes.
