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Energy costs rise, but others ease

SHARE Energy costs rise, but others ease

WASHINGTON — Energy prices surged in March at the fastest pace since Hurricane Katrina, but other consumer costs eased, providing relief from worries that inflation was getting out of hand.

The Consumer Price Index was up 0.6 percent last month, the biggest jump in 11 months, the Labor Department reported Tuesday. Prices had risen 0.4 percent in February.

The March increase was driven by a 5.9 percent spike in energy costs, the largest gain in this area since September 2005, when Katrina shut down Gulf Coast refineries.

Gasoline prices shot up 10.6 percent with another big increase expected in April given that pump prices have continued to rise. The nationwide average for regular hit $2.88, the Energy Department reported this week, up 71 cents over the past 11 weeks.

But outside of gasoline and other energy products, inflation was well contained in March, the CPI report showed.

Food costs slowed after two months of big gains triggered by crop damage in winter growing areas, while clothing costs plunged by 1 percent, the biggest drop in six years.

The cost of prescription drugs was also down, helping to restrain medical costs, while the cost of hotel rooms fell sharply, helping to dampen housing costs.

Core inflation, which excludes volatile energy and food, posted a tiny 0.1 percent rise last month, the smallest increase in three months.

That was better than the 0.2 percent rise that Wall Street had been expecting and eased fears that this year's jump in energy prices could become embedded in higher prices for other products.

On Wall Street, the Dow Jones industrial average rose 52.58 points to close at 12,773.04, with investors bolstered by the inflation news and good earnings reports.

In other economic news, the Commerce Department reported that construction of new homes and apartments edged up 0.8 percent to a seasonally adjusted annual rate of 1.518 million units in March, reflecting a huge rebound in the Midwest that offset construction declines in the rest of the country.

Activity was heavily influenced by the fact that it was the second warmest March on record. Construction surged 44.5 percent in the Midwest while other regions of the country suffered declines, including a 7.7 percent drop in the West, a 6.1 percent fall in the Northeast and a 2.7 percent decrease in the South.

David Seiders, chief econo- mist for the National Association of Home Builders, said he believed construction starts would fall further in the spring as builders continued to work through various troubles dampening sales, including tighter mortgage lending standards in response to rising delinquencies.

For the year, he predicted construction activity will be down 20 percent after falling 12.9 percent in 2006. The housing sector has slumped significantly after posting five years of record sales.

In a third report, industrial production fell by 0.2 percent in March, but that decline was also weather-related as utility output fell, reflecting the warmer-than-normal weather. Manufacturing output was up a solid 0.7 percent, a gain seen as an encouraging sign that troubles in autos and other industries were beginning to abate.

The CPI report showed that prices for the first three months of this year are rising at an annual rate of 4.7 percent, far above the 2.5 percent price increase for all of 2006, with the acceleration coming from big gains in energy costs.

Economists said the slowdown in core inflation should be welcomed at the Federal Reserve, which has signaled it is still more worried about inflation than threats of a possible recession, dashing hopes in financial markets for quick rate cuts this year.

"Similar improvement (in inflation) during the second quarter will be required before the Fed can take the rate-hike option off the table," said Kenneth Beauchemin, an economist at Global Insight, a forecasting firm.

On the Net: Consumer prices: www.bls.gov/cpi

Housing starts: www.census.gov/newresconst

Industrial production: www.federalreserve.gov