Prices paid by consumers increased 0.6 percent, while core CPI also topped forecast with 0.3 percent rise.

May 17, 2006: 8:52 AM EDT


NEW YORK (CNNMoney.com) - Prices paid by consumers rose more than expected in April, giving investors a fresh round of inflation worries.

The Consumer Price Index rose 0.6 percent in April, the Labor Department reported, compared with the 0.4 percent rise in March. Economists surveyed by Briefing.com had forecast a 0.5 percent rise in the government's key measure of inflation. Higher energy prices, led by an 8.8 percent rise in the price of gasoline, helped account for the higher inflation reading.

The so-called core-CPI, which excludes often-volatile food and energy prices, rose 0.3 percent, the second straight month that the closely watched reading came in at that level. Economists had forecast there would be only a 0.2 percent in core CPI in April.

Stock futures and bond prices both fell following the report on concerns that the Federal Reserve will now raise interest rates once again at its June 29 meeting. The Fed said in its statement earlier this month that it might need to keep raising rates to control inflation, but that it would depend on economic readings.

The Fed pays more attention to the core CPI reading, and it said earlier this month that higher energy prices "have had only a modest effect on core inflation." But the core inflation now is up 2.3 percent over the last 12 months, more than the 2 percent level seen as a target for the Fed.

Overall prices are up 3.5 percent over the last 12 months. That's less than the 3.8 percent rise in average hourly wages over the same period, according to a separate Labor Department report, meaning that wages are narrowly outpacing prices.