By Jeannine Aversa
The Associated Press

WASHINGTON - Consumer prices rose by a modest 0.3 percent in February as high energy costs continued to hit the pocketbooks of drivers and people heating their homes.

The increase in the Consumer Price Index, the government's most closely watched inflation measure, however, marked a slowdown from the 0.5 percent jump registered in January, the Labor Department reported Wednesday.

Excluding energy and food costs, "core" consumer prices rose by just 0.2 percent in February for the second month in a row. That suggested that prices for many goods and services were fairly stable.

Federal Reserve chairman Alan Greenspan and his colleagues said inflation is not a problem for the economy. That's one of the main reasons why Fed policy-makers have leeway to hold short-term interest rates at a 45-year low of 1 percent, as they did Tuesday.

"With inflation quite low and resource use slack, the committee believes that it can be patient in removing its policy accommodation," the Fed said. Some private economists viewed that language, along with the Fed's concerns about slow job growth, as meaning Fed policy-makers may not move to raise rates until 2005. Short-term rates have been at 1 percent since June.

From an economic point of view, "inflation is largely contained," economist Richard Yamarone of Argus Research Corp. said. But from a consumer perspective, "life's necessities, namely energy, are more expensive."

Energy prices went up by 1.7 percent in February. While that marked a slowdown from the big 4.7 percent rise reported for January, there is little doubt that consumers continue to feel the sting of higher energy bills.

Gasoline prices increased by 2.5 percent, natural gas prices were up by 2.2 percent, fuel oil prices rose 1.1 percent and electricity prices edged up 0.2 percent last month.