By Jeannine Aversa
The Associated Press

WASHINGTON - Inflation was firmly under control as the new year began. Consumer prices rose by just 1.9 percent in 2003, while the underlying rate of inflation, which excludes food and energy prices, registered its smallest increase in 43 years.

Federal Reserve Chairman Alan Greenspan and other economists have said inflation is not a threat to the economy at this time. Their view was bolstered with Thursday's release by the Labor Department of the latest reading on the Consumer Price Index, the government's most closely watched inflation gauge.

The 1.9 percent increase in the index for all of 2003 was the smallest since 2001 and compares with 2.4 percent in 2002. Cheaper computers, cars and clothes helped to blunt more expensive medical care, college tuition, beef and energy products.

Excluding food and energy prices, which tend to be volatile, core consumer prices rose by just 1.1 percent last year, the smallest increase since 1960. In 2002, core prices posted a 1.9 percent increase.

That is good news for consumers, generally speaking. A long bout of lackluster economic activity, which began to turn around in the second half of last year, made it difficult for many companies to raise prices and led to some price cuts to encourage more sales.

In December, consumer prices rose by 0.2 percent. Core prices nudged up 0.1 percent.

In other economic reports:

• Sales at retailers rose by a solid 0.5 percent in December, the Commerce Department said. That followed a 1.2 percent increase in November, which was stronger than previously estimated.

• New claims for unemployment benefits dipped by a seasonally adjusted 11,000 last week to 343,000, the Labor Department said. This report suggested that companies are feeling more confident the recovery is real.

The four-week moving average of claims, which smoothes out weekly fluctuations, dropped last week to 347,500, the lowest level in nearly three years.