With consumer prices jumping in March, it looks like inflation may have finally arrived as a legitimate market concern, adding to speculation that the Fed will raise interest rates for the first time in four years before November's presidential election rather than after it.

The Labor Department's consumer price index, the most commonly used indicator of U.S. inflation, rose 0.5% in March after a 0.3% increase in February. The report said prices rose most sharply for energy, transportation, clothing and domestic services. The core rate, which excludes food and energy costs, rose 0.4%, twice what economists had forecast and the biggest one-month increase since late 2001. Core prices rose 0.2% in February.

Should the trend continue, the central bank may have to raise interest rates from their 46-year low of 1% to dampen demand, warned Robert Brusca, chief economist at Fact and Opinion Research in New York.

"We've seen these numbers jump out of nowhere, like a mugger coming out of an alley," he said. "There's been no warning, and clearly you have to be cautious."

The higher-than expected inflation figures in March come on the heels of surprisingly strong job creation and retail sales during the month, and add a somber note to the song of recovery some are now singing. The Treasury market sold off again, with the yield on the 10-year note breaking the 4.4% level, having touched a nine-month low of about 3.6% just a month ago.

"Clearly, inflation is rising," Brusca said. "The question is how much is it rising and how fast is it rising. We're getting into a period where we're testing the Fed's patience."

"That's a pretty big increase and I think that firms that have been under downward pressure are finally able to get some catch-up," he said, suggesting that pricing power may have finally returned.

Higher transportation costs, up 1.1% in March, were pinned squarely on the 5.5% jump in gasoline prices for the month. Gasoline was up 1.6% from its previous peak level of March 2003, the report said.

Apparel prices, which saw a 0.9% jump last month, may have seen a boost because of an early Easter holiday. Variable weather in the month may have also contributed to the gain.

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