Inflation gathers steam as housing slides

By Glenn Somerville

WASHINGTON (Reuters) - A steady rise in U.S. consumer prices in January pointed to persistent inflation pressures despite fresh signs on Wednesday that the declining housing sector remains a drag on the economy.

The Consumer Price Index, a broadly based gauge of U.S. inflation, rose a faster-than-forecast 0.4 percent for a second straight month and was up a steep 4.3 percent in the 12 months through January, a Labor Department report showed.

Separately, the Commerce Department said permits for new building fell 3 percent last month to the lowest in 16 years while starts on new homes rose only slightly.

"It is by no means self-evident that a slowdown in the U.S. economy will hold down inflationary expectations at a time of rising commodity costs," said economist Roger Kubarych of UniCredit Global Research in New York.

The Federal Reserve later lowered its estimate for U.S. economic growth in 2008 to a range of 1.3 percent to 2 percent from 1.8 to 2.5 percent that it had foreseen last November.

It cited "an especially worrisome possibility" that economic weakness may feed on a contraction in credit and thus further undermine growth.

Financial services firm UBS, in a research report issued on Wednesday, said it considered that a mild recession already has begun in the United States.

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