The seasonally adjusted core U.S. Consumer Price Index rose by 0.1% (0.104%) in April, a tenth lower than expectations and contributing to a 2.3% year-over-year change, according to a U.S. Department of Labor report.

The all-items headline figure increased 0.2% month-over-month (0.207%), also a tenth lower than expectations and contributing to an annual increase of 3.9%. Only a handful of the 77 economists surveyed before the report expected to see core inflation deviate higher or lower than the consensus 0.2% forecast. Energy prices were flat in April but are up 15.9% on the year, while gas prices fell 2.0% in the month.

According to Boston Fed President Eric Rosengren, there is an elevated amount of reluctance from banks to lend. "The practices of risk management in general, and operational risk management in particular, have made great strides in the past several years - progress that has been stimulated, in part, by the Basel II process," Rosengren said in his opening remarks at the Boston Fed's conference on 'New Challenges for Operational Risk Measurement and Management'.

Speaking with Rosengren, Fed Governor Randall Kroszner urged rapid adoption of the Basel II rules on capital. "The Basel II capital framework is a positive step forward through its combination of more risk-sensitive capital requirements with strong incentives for improved risk management," Kroszner said. "In this manner, we expect Basel II to make the U.S. banking industry more resilient in the face of future financial turbulence and generally more safe and sound."

U.S. crude oil stockpiles increased by 176k barrels in the week ending May 9, according to data released Wednesday from the Department of Energy (DOE). The Bloomberg consensus estimate of analysts was for a 2,250k increase in supply. On Wednesday, crude traded in a range of $123.77-$126.04 after hitting a record high of $126.98 on Tuesday.

A surge in real estate listings in Canada's major markets slowed down the pace of price increases in April, according to a report by the Canadian Real Estate Association. The number of new listings of homes for sale on the Multiple Listing Service (MLS) reached its highest level ever in April and increased 1.8% from the previous month. Unadjusted new listings were up 17.7% from April 2007.

Canadians seem unfazed by the U.S. mortgage crisis and news reports of an impending economic downturn in Canada, a new report from the Canadian Association of Accredited Mortgage Professionals (CAAMP) shows. Attitudes toward the housing market seem to dovetail with local economic conditions, CAAMP says. In Atlantic Canada, half of respondents said it was a good time to buy a home, versus 24% who did not. Meanwhile, in Western Canada, where house prices have skyrocketed and affordability has deteriorated, respondents were decidedly less positive about buying a house at the current time.

Weekly mortgage applications in the United States rose in the week ending May 9, according to data from the Mortgage Bankers' Association (MBA) on Wednesday, which said applications increased by 2.9%. In the previous week, applications rose 15.6%.

According to a report from the U.S. Bureau of Labor Statistics on Wednesday, average real wages fell 0.5% month-over-month in April, below the previous month's 0.2% gain. The report also cited annual growth of 3.1% in real average hourly earnings, below the annual 3.3% growth rate in March.

Testifying before the Congressional Joint Economic Committee, former Fed Chairman Paul Volcker said the Fed should be the primary regulator of financial markets but lacks the tools to fulfill that role. Due to the events induced by the credit crunch, such as the collapse of Bear Stearns, there is now a need for investment banks to be regulated like commercial banks, he said.

The current growth model for China is not sustainable, according to Alan Holmer, the Treasury's special envoy for China, who said a slowdown in the growth of jobs and wages was expected. Holmer stressed the importance for the Chinese government to focus on the quality, as well as the quantity, of their products and for greater emphasis on domestic demand. He also said there was a need for a more flexible exchange rate regime.

Earlier in the day, the People's Bank of China (PBOC) announced it has made inflation its top priority in a bid to battle rising prices and strengthen liquidity control. The PBOC said it will use interest rates "prudently" as consumer prices remain very high. The bank also said that Chinese economic growth has come down slightly this year and is expected to experience a moderate slowdown in 2008.

The bank also said it was looking to increase currency flexibility and promote stability. Noting a decline in foreign exchange volatility surrounding the euro and yen, the PBOC said the yuan had experienced increased two-way fluctuations in the first quarter. The PBOC also stated that the importance of the U.S. dollar in international reserves was weakening and the greenback's role as an international currency would weaken in the long term.

Also, the Bank of England's inflation report suggested, Governor Mervyn King could be required to write "a number of letters" to the Chancellor of the Exchequer Alistair Darling explaining why inflation rates are beyond the BOE's 3.0% upper bound. King said that higher inflation rates could persist for several quarters if the BOE continues cutting rates.

The Office for National Statistics (ONS) announced that the unemployment rate remained unchanged at 5.2% in the first quarter of 2008, well in line with expectations. "The unemployment level was 1.61 million in the three months to March 2008, up 14,000 from the three months to December 2007 but down 83,000 from a year earlier," the ONS elaborated in a press release.

ONS also reported that the claimant count rate for unemployment in the UK rose 2.5% to 806,300 in April, in line with expectations and unchanged from the previous month. Jobless claims increased by 7,200 in March, up from the 3,600 rise seen in February. Economists were looking for a flat reading. February's reading was revised up from a drop of 1,200 jobless claims.

European Central Bank member Nicholas Garganas said current high inflation is transitory but a "tough" monetary policy might be necessary to achieve price stability. "To clearly spell it out: If we have to follow a tough monetary policy in order to achieve our goal, so be it - this is our duty," he was quoted as saying in the Financial Times Deutschland.

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