Consumer prices in check as housing starts climb

WASHINGTON -- The nation's inflation picture -- other than a war-related run-up in energy prices -- looked good in March, and housing construction rebounded, offering a dose of decent news for the struggling economy.

The Consumer Price Index, the government's most closely watched inflation barometer, rose a modest 0.3 percent in March-- half the size of the 0.6 percent advance posted in February, the Labor Department reported Wednesday.

Rising energy costs, which recently have been retreating, were the main culprits behind the increase in the CPI in February and March.

Excluding energy and food prices, which can swing widely from month to month, the "core" rate of inflation was flat in March -- down from a tiny 0.1 percent rise the month before -- representing the best showing in four years.

"There is virtually no persistent inflationary pressure," declared Stephen Cecchetti, economics professor at Ohio State University.

In a second report, the number of housing projects builders broke ground on in March jumped by 8.3 percent to a seasonally adjusted annual rate of 1.78 million, the Commerce Department said. The rise followed a 10.4 percent drop in February, when harsh winter weather delayed new projects.

While other parts of the economy are struggling, the housing market has stayed robust, helped out by super-low mortgage rates, which have motivated buyers.

More builders also are offering incentives, including putting options into the house at no extra charge and providing free upgrades, such as better carpet and hardwood floors, to attract buyers, said David Seiders, chief economist at the National Association of Home Builders.

Builders are more optimistic about sales prospects for the next six months, a survey by the association showed.

"Signs that the situation in Iraq is under control and that consumer confidence is reviving are giving builders a sense of reassurance," said NAHB President Kent Conine.

While housing construction went up in March, housing permits -- viewed as a sign of current demand -- fell by 7 percent last month, something that troubled some economists.

Wall Street investors paid little attention to the economic reports. The Dow Jones industrial average lost 144.75 points to close at 8,257.61.

On the inflation front, stable or falling prices are one of the few benefits for consumers that comes out of a listless economy. Faced with lackluster demand, many companies continue to find it difficult to raise product prices, economists say.

Putting aside higher energy prices, there were some bargains to be had for shoppers in March.

Prices for clothing fell 0.4 percent. Lodging costs -- still feeling the lingering fallout from the 2001 terror attacks and the airline industry's woes -- dropped 1.3 percent. Computer prices were down 0.5 percent and prices for telephone service declined 0.8 percent, byproducts of the battered technology sector.

Food prices edged up 0.2 percent in March, down from a 0.7 percent advance in February.

Energy prices, however, went up 4.6 percent in March, on top of a 5.9 percent increase in February, as tensions related to the war in Iraq stoked prices. Gasoline prices rose 4.1 percent last month, natural gas prices jumped 14.8 percent and fuel oil prices went up 9.8 percent.

Oil prices, however, have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the outbreak of fighting in Iraq.

Medical care prices up just 0.2 percent in March have risen 4.3 percent in the last 12 months, putting a dent in people's wallets. Education costs, including tuition and supplies, are a sore spot for consumers, too. Those prices rose 0.5 percent in March and are up 6.3 percent for the last 12 months.

Still, a long period of tame inflation has allowed the Federal Reserve to keep the federal funds interest rate, its main lever to influence the economy, at a 41-year low of 1.25 percent in a bid to help energize the sluggish economy.

Profit-pressed businesses and battered manufacturers have been reluctant to make big investments in capital projects and in hiring, a major factor restraining economic growth.

While businesses have largely clamped down on new spending and investment, consumers have been more energetic, lured by heavy discounting and free financing, especially on cars and other big-ticket goods.

Fed Chairman Alan Greenspan and his colleagues have said they are hopeful that once the war is over, the economy will return to full health.

"With the war's end at hand, I'm very anxious to see how the economy will respond," said Carl Tannenbaum, chief economist at LaSalle Bank.

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On the Net

CPI: www.bls.gov/

Housing starts: www.commerce.gov/