msnbc.com staff and news service reports
updated 3/23/2005 3:27:26 PM ET 2005-03-23T20:27:26

In a fresh sign that inflation is gaining momentum, consumer prices rose 0.4 percent in February, the biggest increase in four months.

Major Market Indices

Although rising energy costs were a main reason for the spike in prices, underlying core consumer prices rose 0.3 percent, a bit faster than analysts had expected.

The report came just a day after the Federal Reserve raised short-term interest rates and issued a fresh warning about inflation, roiling stock and bond markets and raising the prospect of a longer and steeper series of future rate hikes.

Although sharp increases in energy costs — including gasoline — led the way in February, many other prices including airfares, medical care and education costs  also went up.

“Inflation is elevated but there is no cause for panic,” said Ken Mayland, president of ClearView Economics. “The Fed saw all this coming and it put us on a course of raising interest rates last year. The situation is well in control.”

On Wall Street, stocks were little changed after dropping sharply Tuesday.

David Rosenberg, chief North American economist at Merrill Lynch, said the latest report reflected some pass-through to consumers of higher energy costs. Airfares, for example, were up 1.5 percent from January.

In its statement Tuesday, the Fed said rising energy prices had not yet had a major impact on general consumer prices, although it warned that "pressures on inflation have picked up in recent months and pricing power is more evident."

In other economic news, sales of previously owned homes dipped by 0.4 percent in February from the prior month to a seasonally adjusted annual rate of 6.79 million, the National Association of Realtors reported. Even with the decline, the pace of sales was still considered healthy.

Economists believe home sales will cool — but not collapse — as mortgage rates are expected to head higher this year.

Energy prices jumped by 2 percent last month, compared with a 1.1 percent decline registered in January.

Gasoline prices in February rose 3.2 percent, natural gas prices were up 2.5 percent and fuel oil costs increased 2.4 percent.

Oil prices, which set a new record high last week, have dipped over the past two days to about $54 a barrel.

Food prices inched up by just 0.1 percent in February.

Over the past 12 months, consumer prices have risen 3 percent, in part reflecting a 10.4 percent surge in energy costs.

The Associated Press, Reuters and MSNBC.com's Martin Wolk contributed to this story.

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