Rise in Prices, Inventories Hint at Slowdown, Analysts Say : Economy: But experts expect the Fed to raise interest rates to fend off future inflation pressures.

Consumer prices rose a moderate 0.3% last month and unsold goods continued to pile up on store shelves, the government said Friday, but analysts said the reports will not keep the Federal Reserve Board from raising interest rates again next week to further cool the economy.

The Labor Department said the modest rise in its consumer price index was fueled by big jumps in the prices of gasoline and coffee. In the first seven months of this year, consumer prices rose at a 2.7% annual rate--an exact match to last year’s increase.

Meanwhile, the Commerce Department said that business inventories rose 0.4% in July--the third straight monthly advance--as manufacturers churned out more goods than consumers wanted to buy or retailers could sell.

Combined, analysts said, the two reports show that inflation remains under control and that the economy is slowing. Stocks rallied and bond yields fell on the news, with the Dow Jones industrial average gaining nearly 17.81 points and the yield on the newly auctioned benchmark 30-year bond falling to 7.50% from 7.56% Thursday.

But most economists agreed that the Fed will probably still raise interest rates when its policy-making Federal Open Market Committee meets on Tuesday, hoping to squelch the inflationary pressures that some board members believe are growing.

“The Fed’s job is to worry about inflation several months down the road, not what inflation is doing today,� said Lynn Reaser, chief economist for Los Angeles-based First Interstate Bank. “And the fact is, some inflationary pressures seem to be building up.�

Some analysts have become increasingly concerned about rising energy prices.

The CPI report said a 3.5% jump in the price of gasoline pushed the typical American’s overall energy costs up 1.8% in July, the biggest increase in nearly a year. Higher energy prices, coupled with a 0.5% hike in the cost of food, easily offset the 0.4% decline in the cost of new clothes.

Analysts say energy prices could go higher in the months ahead, especially if an oil workers strike in Nigeria continues to crimp supply and the economic recovery in Europe raises demand.

When the volatile cost of energy and food is excluded, the “core� rate of inflation rose a tinier 0.2% last month. But with prices on the producer level already rising fast--the Labor Department said Thursday that wholesale prices surged 0.5% in July, the biggest increase in more than a year--inflation could make a comeback if the Fed doesn’t raise rates again soon.

“The Fed’s concerns about inflation are real, even if we don’t see high inflation today,� said Cynthia Latta, senior economist at DRI/McGraw Hill in Boston.

Latta said the Fed will probably raise its federal funds rate by one-quarter of a point when it meets next week, to 4.5%, but that a half-point increase is still possible.

“Some level of increase is inevitable. Now it’s just a matter of how large it is going to be,� she said.

The 0.4% rise in business inventories was another sign that the Fed’s four rate hikes earlier this year have already put the brakes on the nation’s economic growth.

Consumers began cutting back on their spending about the same time that the Fed hiked rates for the first time last February. But manufacturers kept their plants operating at full speed, causing their warehouses to fill up and retailers’ shelves to overflow.

However, a third report released Friday indicated that consumers may be feeling a bit more upbeat about their economic future. The University of Michigan said its preliminary consumer sentiment index for August stood at 92.6, up from 89 in July.

Consumer Price Index

Percent change from prior month, seasonally adjusted:

July, 1994: 0.3%