By Jeannine Aversa
The Associated Press

WASHINGTON - Rising prices for gasoline, air travel and clothing propelled consumer costs 0.5 percent higher in March, raising the possibility that the Federal Reserve may raise interest rates this summer.

Wednesday's reading on the Consumer Price Index, the government's most closely watched inflation measure, revived concerns about the prospects of an inflation flare-up now that the economy is rebounding, economists said.

The report by the Labor Department "confirms my worst fear: Inflation is rising," said Stephen Cecchetti, economics professor at Brandeis University. "Details confirm that the inflation increase isn't in some isolated place, or the consequence of some special factor."

The 0.5 percent increase compares with February's 0.3 percent increase and matched January's figure.

Especially jolting was the 0.4 percent increase in core consumer prices, excluding energy and food costs. The increase was 0.2 percent in both January and February.

The latest snapshot of the inflation climate showed consumer prices moving up more quickly than expected. It "solidifies the path toward a Fed tightening move this summer," said Mark Zandi, chief economist at Economy.com.

On Wall Street, stocks slipped. The Dow Jones industrial average lost 3.33 points to close at 10,377.95.

In other economic news, the U.S. trade gap narrowed to $42.1 billion in February, a 3.2 percent decline from January's record deficit, the Commerce Department reported. The improvement came as U.S. exports of goods and services grew strongly and outpaced the rise in imports.

With the economy rebounding, some companies have a greater ability to raise product prices, economists said. Rising energy costs in some cases are being passed along in the form of higher prices, analysts added.

For the first three months of this year, consumer prices increased at an annual rate of 5.1 percent, compared with a 1.9 percent increase for all of 2003.

When the economy was struggling, many companies found it difficult to raise prices. That created a climate where inflation hasn't been a threat to the economy.