Consumer prices increased modestly in February, the government reported Friday, underscoring that inflation remains low and stable, but a sharp rise in energy costs will be a factor to monitor in coming months.


Labor Department

said its

Consumer Price Index

rose 0.5% in February, following a 0.2% increase in January. Energy costs were up 4.6% and food prices were up 0.4%. The core CPI rate, excluding food and energy costs, rose 0.2%, as it did the month before.

The prices U.S. consumers paid for goods and services in February were generally in line with market expectations. "The core was well behaved," said Peter Kretzmer, senior economist at

Banc of America Securities

. "Outside energy, it looks very much as it has looked for some time."

On Thursday, the Labor Department

reported that its

Producer Price Index

rose 1% in February, primarily because of sharp rises in energy and tobacco prices. But its core rate would have been unchanged if tobacco prices were excluded along with food and energy costs.

"When looking at PPI yesterday combined with CPI today, there is no buildup in underlying inflation, as amazing as it may seem with this record-long expansion," added David M. Jones, chief economist at

Aubrey G. Lanston & Co.

But economists are somewhat concerned by the 4.6% rise in energy prices, compared with a 1% increase in January. "The inflation story will be a different story if energy is up and stays up," Jones said. "The worry is that it will spill over into businesses that rely on energy and result in higher airfares. Or that it will spill over into higher labor costs."

"It always troubles me, even as an economist, that people take out energy and food because they are volatile," Jones said. "If you take out enough, you will always get a stable number."

Even so, few economists believe that the inflation figures this week will push

Alan Greenspan

, the

Federal Reserve

chairman, and other Fed policymakers to move much more aggressively to raise interest rates. "These numbers aren't going to be a huge red flag," Jones commented. "Alan Greenspan has made a point of emphasizing that if the core is well behaved, he will move only in incremental steps to cool off growth."

The Fed's policymakers are meeting next week and they are expected to raise short-term interest rates by a quarter of a percentage point. One or two other quarter-point increases are expected in the coming months, but economists currently don't anticipate a more drastic half-point increase in rates.