020351 Consumer Prices Up 0.2 Percent

Washington - Higher prices for clothing, medical care and airline fares contributed to a mild 0.2 percent rise in consumer inflation in February.

The advance in the Consumer Price Index, a closely watched gauge of inflation, matched January's increase, the Labor Department reported.

Excluding energy and food prices, the "core" rate of inflation rose 0.3 percent in February, following a 0.2 percent rise.

Even with the slight pickup in consumer inflation, falling prices for new cars and trucks, computers and home furnishings provided shoppers with some bargains.

Another department report showed new claims for unemployment insurance fell by a seasonally adjusted 12,000 last week to 371,000, the lowest level in a month. That provides further evidence layoffs are abating as the economy stages a comeback.

But a third economic report suggested that the comeback may not be smooth.

A key gauge of U.S. economic activity held steady in February following four straight months of gains. The New York-based Conference Board reported its Index of Leading Economic Indicators remained steady at 112.4 last month, following a revised 0.8 percent increase in January.

On Wall Street, stocks were mixed. The Dow Jones industrial average was off 60 points, while the Nasdaq index was up 7 in morning trading.

In the inflation report, clothing prices, which had fallen in each of the last three months, rose 0.5 percent in February, the biggest increase in a year, reflecting the introduction of higher-priced spring and summer wear.

Prices for medical care went up 0.3 percent in February, lifted by increases in prescription drug prices and hospital charges.

Airline fares rose 1 percent in February, the largest increase since June.

Food prices grew by 0.2 percent as higher prices for beef, vegetables and poultry swamped lower prices for fruit and pork. In January, food prices rose 0.3 percent

Energy prices dropped 0.8 percent in February, following a 0.9 percent advance the month before. Gasoline prices dipped 0.4 percent, natural gas prices dropped 3.3 percent, fuel oil prices went down 0.9 percent and electricity prices declined 0.7 percent.

Prices for new cars and trucks dropped 0.9 percent in February, the biggest decline since 1987. Prices for home furnishings edged down 0.2 percent and computer prices dropped 3.3 percent.

After slashing short-term interest rates 11 times last year to rescue the economy from recession, the Federal Reserve decided to leave rates unchanged, just as it did in January. But Fed policy-makers, pointing to the strength of the economic rebound, did opt to shift their policy directive, a sign of future moves.

The Fed moved from a stance that focused on combatting the recession through lower interest rates to a so-called neutral policy where the risks of inflation and economic weakness are equally balanced.

Economists viewed that change as preparing Americans for the possibility of higher rates this year. Some analysts believe the Fed will begin to raise rates as early as May or June.

With the economy bouncing back from a recession that began last March and interest rates at their lowest level in four decades, a few economists worry that inflation could worsen, another reason for the Fed to act sooner rather than later, they say.

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