The consumer price index rose 0.4 percent after a 0.3 percent increase in January, the Labor Department said today in Washington. Excluding food and fuel, the so-called core rate climbed 0.2 percent for a second month. Fuel, clothing and automobile costs led the advance last month.

The gains last month pushed the annual inflation rate up to 1.8 percent, within the range that most Fed officials define as their objective. Some central bankers, including St. Louis Fed President James Bullard, have warned about the risk of deflation, a pattern of prolonged price declines that would hurt profits, make it harder to repay debt, and worsen the recession.

“It brings some relief to the Fed, they are exactly in the middle of their comfort zone,” said Harm Bandholz, a U.S. economist at UniCredit Research in New York who correctly forecast the rise in the core rate.

Treasuries were little changed after the report, with benchmark 10-year notes yielding 3 percent at 8:52 a.m. in New York. Futures on the Standard & Poor’s 500 Stock Index fell 0.7 percent to 769.90.

Economists’ Forecasts

Consumer prices were forecast to rise 0.3 percent, according to the median of 71 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.1 percent to 0.7 percent. Costs excluding food and energy, known as core prices, were projected to rise 0.1 percent.

Prices rose 0.2 percent from February 2008, up from no change in the prior 12-month period that was the weakest performance since 1955.

The core rate climbed 1.8 percent from February 2008, after a 1.7 percent year-over-year increase the prior month.

Energy expenses increased 3.3 percent, led by an 8.3 increase in gasoline prices. Still, the fuel’s cost is down 36 percent from a year earlier.

Food prices, which account for about a fifth of the CPI, fell 0.1 percent, the first drop since April 2006.

The cost of commodities, excluding food and fuel, rose 0.4 percent, the most since September 1999, indicating the broad- based nature of price increases. New vehicle prices increased 0.8 percent, the most since November 2004, and clothing costs jumped 1.3 percent, the most in almost 19 years.

Planes, Hotels

These increases were only partially offset by cheaper air fares and hotel rates, and smaller increases in rents than in the prior month.

Today’s figures also showed wages decreased 0.3 percent in February after adjusting for inflation, and were up 2.5 percent over the last 12 months.

The CPI is the broadest of the three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to rent and movie tickets.

Prices aren’t falling even as the economy may be in the midst of the worst recession in the postwar era. Retailers boosted post-holiday discounts to attract consumers battered by slumping house and stock values and the highest jobless rate in a quarter century.

“We, along with the entire industry, were very promotional in an effort to reduce our inventory levels,” Nieman Marcus Group Inc. Chief Executive Officer Burton Tansky said on a March 11 conference call with analysts. The luxury retailer posted a second-quarter loss after cutting prices during the holidays.

Deflation Concern

Still, economists caution that a deeper economic slump may cause the slowdown in inflation to turn into outright deflation. Longer term, others worry that the unprecedented fiscal stimulus and the Fed’s policy of buying more assets and pumping money into the financial system will reignite inflation.

Fed Chairman Ben S. Bernanke said last week the central bank is focused on the economy and would remain vigilant against both deflation and inflation.

“I’m mostly worried about the economy,” said Bernanke. “We do think inflation will be quite low over the next couple of years. At the same time, we have to be very careful to make sure we are prepared to withdraw monetary stimulus at the appropriate time to make sure that down the road we don’t have inflation.”

 SOURCE: Bloomberg