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Inflation rate is moderate

Inflation was moderate last month but not moderate enough to prevent Federal Reserve policymakers from increasing interest rates next week if that's what they're determined to do.

Consumer prices increased a seasonally adjusted 0.3 percent in February, with little sign of inflation except in typically volatile items such as vegetables and natural gas, the Labor Department said Wednesday.

The rise was a notch higher than many economists anticipated. However, so-called core prices _ excluding food and energy _ rose a more modest 0.2 percent.

"Inflation remains moderate," said economist Lynn Reaser of Barnett Banks Inc. of Jacksonville. "We have not seen companies willing or able to pass on any wage pressures they may have experienced."

Nevertheless, financial markets reacted badly. The Dow Jones Industrial Average fell 60 points, but recovered much of that late in the afternoon to close at 6,877.68, down 18.88. Bond prices had started the day higher, but turned lower after the report.

"It's not the current numbers on inflation that make it or break it for the Fed next week," said economist Nicholas Perna of Fleet Financial Group of Boston. "It's whether the economy is growing too fast and will produce a pickup in inflation down the road."

The price report dispelled hopes that inflation was even more contained. Those hopes had been raised last week by a Labor Department report unexpectedly showing prices paid to farms, factories and other producers fell sharply in February for a second month in a row.

Fed Chairman Alan Greenspan has said the central bank would move pre-emptively before imbalances in the economy ripple into a measurable acceleration of inflation.

Thus, many but by no means all economists expect the central bank at its Tuesday meeting to increase its benchmark rate _ unchanged for more than a year _ by a quarter of a percentage point. That would translate into higher borrowing costs for millions of American businesses and consumers on everything from auto loans to adjustable-rate mortgages.

Greenspan offered no hint of the central bank's decision next week in an appearance before a House Banking subcommittee Wednesday. He told the panel the record increase in personal bankruptcies to more than 1-million last year was "really quite remarkable" given the economy's strength but said, "It's not a major concern."

For the year so far, overall inflation was running at an annual rate of 2.3 percent, compared with 3.3 percent for all of last year. Economists are predicting a price rise of 2.9 percent for 1997.

Food prices in February rose 0.3 percent, erasing a 0.3 percent loss in January. The price of fresh vegetables surged 8.9 percent, the worst in 22 months. That's fallout from a late January freeze in Florida.

Energy prices increased 0.3 percent last month, the sixth increase in a row. Still, that was far less than the 0.8 percent rise in January and even larger increases in each of the last three months of 1996.

Natural gas prices climbed 1.2 percent, bringing the rise over the past 12 months to 14.4 percent. But fuel oil declined.

Prices outside food and energy were helped by a 2.6 percent drop in airline fares, coming on top of a 3.2 percent decline the month before. A 10 percent federal airline ticket tax lapsed Jan. 1 but was reinstated March 7.

In a separate report, the Labor Department said Wednesday inflation-adjusted average weekly earnings rose 2.4 percent. It was the biggest monthly gain on record since the government began producing the statistic in 1964 but followed a 1.7 percent drop in January. Both changes were caused mostly by weather-related swings in numbers of hours worked.

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