The Associated Press

WASHINGTON - Rising gasoline costs put a dent in motorists' wallets in August and contributed to the biggest increase in consumer prices in five months, the Labor Department reported Tuesday.

The government's most closely watched inflation barometer, the Consumer Price Index, rose by 0.3 percent, matching the increase of last March. Consumer prices had gone up 0.2 percent in both June and July.

Energy costs jumped 2.7 percent in August, up from a 0.4 percent rise the previous month. Most of the increase was because of skyrocketing prices for gasoline, which soared by 6.2 percent.

"Energy prices were the villain again," said Ken Mayland, president of ClearView Economics.

Excluding energy and food prices, which tend to swing widely from month to month, "core" consumer prices nudged up by just 0.1 percent in August, half the 0.2 percent increase of the previous month. The showing on the core inflation rate suggested that most other prices are moderate.

The latest CPI reading "confirms inflation is relatively modest, at least for now," said Stephen Cecchetti, economics professor at Brandeis University. From an economic perspective, "there isn't much here to lose sleep over."

Even with recent increases in the CPI, Fed policy-makers have expressed more concern about inflation going down, rather than up.

Economists have said the current climate of generally low levels of inflation allows policy-makers with the Federal Reserve Board the leeway to keep a key short-term interest rate at a 45-year low of 1 percent - and the Fed did just that Tuesday.

In holding the line, the Fed said that low short-term interest rates "can be maintained for a considerable period."

At previous Fed meetings and in speeches, Fed Chairman Alan Greenspan and his colleagues have talked about the importance of being on guard against the remote threat of deflation, an economically dangerous and widespread price decline, because of its potential to wreck the economy.

But with the economy showing signs of gaining traction, deflation fears should ease, some economists said.

For the 12 months ending in August, consumer prices rose 2.2 percent, compared with a 2.4 percent increase for all of last year. Core prices, excluding energy and food costs, meanwhile, went up by just 1.3 percent, the smallest increase since 1966, and down from a 1.9 percent advance for all of 2002.

The weakness in core prices is a byproduct of a lackluster economic climate earlier this year that has made it difficult for some firms to raise prices. That's a benefit for consumers, but can squeeze producers' profits margins.

Computer prices fell by 2.9 percent in August. Airline fares dropped by 1.6 percent and costs for lodging prices dipped by 0.3 percent.

Food prices increased 0.3 percent in August. Rising prices for dairy products and beef and veal outweighed falling prices for fruits and pork.

Medical care costs rose 0.2 percent in August and are 3.9 percent higher than a year ago.