Emily Whipple of Boston selects her produce at the Golden Goose Market in Boston Wednesday. Prices for vegetables, fruit, poultry and pork rose last month, a federal report says. - AP

Reports paint sluggish economic picture

WASHINGTON — Consumers paid more to fill up their gas tanks, buy groceries and go to the hospital in January as prices on a range of items climbed.

Inflation was increasing even as the economy was slowing dramatically, a development certain to raise concerns at the Federal Reserve. The Fed has cut interest rates aggressively in the belief that fighting off a threatened recession was more important than worrying about inflationary pressures.

The Labor Department reported its closely watched Consumer Price Index posted a gain of 0.4 percent last month. That matched the December increase and was higher than the 0.3 percent rise analysts had expected. Food costs jumped by the largest amount in 11 months.

Core inflation, which excludes food and energy, rose by 0.3 percent, the biggest jump in seven months. That increase reflected higher prices for medical care, education, clothing, tobacco and airline fares. With the latest increase, core prices have risen over the past 12 months by 2.5 percent, far above the Fed's comfort zone of 1 percent to 2 percent gains in the underlying inflation rate.

A second report Wednesday showed that the housing sector remains in a steep downturn. Construction of new homes and apartments edged up by a slight 0.8 percent in December to an annual rate of 1.012 million units. But all the strength came from a rebound in apartment construction, which had plunged in December. The larger single-family sector fell by 5.2 percent last month.

Applications for building permits, considered a good sign of where construction is headed, fell by 3 percent to its lowest level since November 1991.

The Fed slashed its own forecast for economic growth in a new projection released Wednesday but still had no recession in its outlook. The updated forecast projected the overall economy will grow between 1.3 percent to 2 percent this year, down from an October forecast when the Fed had predicted the economy would grow by a stronger 1.8 percent to 2.5 percent this year.

Meanwhile, the Labor Department said that average weekly earnings for non-supervisory employees, the bulk of the work force, fell by 1.4 percent in January, compared with a year ago. It was the fourth consecutive monthly decline, when compared with a year ago, and further evidence that wage gains are failing to keep up with inflation.

For all of 2007, consumer inflation rose by 4.1 percent, the biggest increase in 17 years. Costs of both food and energy accelerated sharply. Economists said they still believe that food and energy will moderate this year, though events could change that outlook. For example, oil prices closed at more than $100 per barrel this week for the first time. A new closing mark came Wednesday, $100.74.

For January, energy costs were up 0.7 percent with gasoline costs rising by 1.2 percent.

Medical costs showed a 0.5 percent increase, up from a 0.3 percent rise in December. Prescription drug prices shot up by 0.7 percent, the biggest rise in a year, while hospital prices were up by 1 percent.

The category that includes education costs rose by 0.4 percent while airline fares were up by 0.8 percent, reflecting higher fuel costs, and clothing costs rose by 0.4 percent, while clothing costs rose by 0.4 percent. Analysts blamed the fifth monthly rise in clothing prices on a weaker dollar against many foreign currencies, which pushes the price of imported clothes higher.

The report on housing showed construction was up by 18.9 percent in the Northeast, reflecting an unusually warm January, and up by 12 percent in the Midwest, also a gain that was attributed to weather. Construction fell by 6.1 percent in the West and dropped 2.9 percent in the South.

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