Consumer price rise depresses US shares

SHARE prices slid on Wall Street yesterday as an unexpectedly large rise in April consumer prices fuelled fears of resurgent inflation in the US.

Consumer prices rose 0.4 per cent last month, lifting the annual rate of inflation from 3.1 to 3.2 per cent after adjusting for seasonal factors, the Labor Department said. Analysts had expected a 0.2 per cent increase on the month following a 0.1 per cent rise in March. The figures came in the wake of Wednesday's disappointingly high producer prices figures.

President Bill Clinton said the inflation data 'could be just a blip' but that he would wait and see. 'At the present time there is no cause for long-term concern', he said.

The figures unnerved the stock market, with the Dow Jones Industrial Average closing down 34.32 points at 3,447.99. Wall Street's fall hit share prices in London, with the FT-SE index of 100 leading shares falling 11.5 points to 2,849.3. US bond prices were also depressed.

The dollar had a choppy day, with trading thin as the foreign exchange markets awaited details of the exchange rate mechanism realignment. The dollar closed 0.45 pfennigs higher in London at DM1.6145 while the pound fell 1.45 cents to dollars 1.5250.

Separate data showed US retail sales rising by 1.2 per cent in April in line with economists' forecasts. This was the sharpest rise in six months and was led by strong sales of new cars. Albert Edwards, US economist at Kleinwort Benson, said this was consistent with growth in the economy of about 3 per cent a year. New claims for unemployment benefit also fell unexpectedly, by 3,000 last week to 339,000.

Mr Edwards said that economic recovery was giving companies scope to resuscitate their profit margins. He said the Federal Reserve's attitude to interest rates was dominated by prospects for inflation rather than the chance of faltering recovery. But he did not expect the Fed to raise US interest rates until the second half of next year.