New home construction rises, but permits sink

Construction of new homes rose more than expected in April. But a drop in building permits, a gauge of future activity, along
with the expiration of a government tax credit for home purchases suggest the construction gains could fade soon.

Meanwhile, wholesale prices edged down 0.1 percent last month, the second decline in the past three months, the Labor Department
said Tuesday. Core inflation, which excludes energy and food, rose 0.2 percent, slightly faster than expected. But over the
past year, core prices are up just 1 percent.

The absence of inflation pressures means the Federal Reserve can continue to keep interest rates at record lows to bolster
the economic recovery.

In a separate report, the Commerce Department said construction of new homes and apartments rose 5.8 percent last month.
That was a larger increase than expected and pushed activity to a seasonally adjusted annual rate of 672,000 units, the highest
since October 2008.

However, applications for building permits, an indicator of future activity, fell 11.5 percent. That was a larger decline
than had been expected.

Home sales were helped by low mortgage rates and two government tax credits that expired on April 30.

"There is little doubt the housing numbers have been boosted," by the tax credit, wrote Dan Greenhaus, chief economic
strategist with Miller Tabak + Co.

For April, food costs dipped by 0.2 percent. It was the first decline in nine months and came after a 2.4-percent surge during
the previous month — the largest gain in 26 years. The March increase reflected the impact of a winter freeze in Florida
that heavily damaged citrus and vegetable crops.

Energy prices fell 0.8 percent in April with gasoline prices down 2.7 percent.

The rise in core inflation, which excludes volatile energy and food prices, followed two straight months of 0.1-percent gains.

Household appliances posted a 1.9-percent jump, the largest since October 1974. Passenger car prices rose 0.6 percent, the
biggest increase since June 2009.

Economists believe that the report on consumer prices, which will be released on Wednesday, will also show slight price pressures.
They are predicting overall prices and core inflation will both post 0.1-percent gains.

The recession has banished inflation for the time being. The more than 8 million jobs lost over the past two years has left
workers without the bargaining power to boost wages.

In addition, companies, facing slack demand and idle plant capacity, have not had the power to raise the price of their products.

The absence of inflation has allowed the Fed to keep its benchmark federal funds rate at a record low of zero to 0.25 percent
since December 2008, as the central bank has worked to jump-start economic growth.

Some Fed officials have argued that the greater threat at the moment is the risk of deflation, or a debilitating drop in
prices. That is something the United States has not seen since the Great Depression.