Surging energy costs helped push up US consumer prices in March, and with food and energy stripped out inflation rose at the sharpest rate in 2½ years, drawing a warning from the Federal Reserve yesterday that it was closely watching price pressures.

The Consumer Price Index, widely used as a major gauge of inflation, was up 0.6 per cent last month - the sharpest monthly gain since October - following a 0.4 per cent rise in February, the government said.

But surprisingly and on a more worrying note, the so- called core rate that strips out volatile food and energy costs accelerated to a 0.4 per cent increase in March from 0.3 per cent in February.

That was the biggest monthly increase in core inflation since a matching 0.4 per cent jump in August 2002, and reflected a broad-based pick-up in many categories of goods.

"You can't make a decision on an individual number, but just based on this one number, this would make the Fed more emboldened perhaps to continue tightening," said economist Robert Macintosh of Eaton Vance Management in Boston.

US bond prices weakened as investors feared the inflation data might induce the US Federal Reserve to boost interest rates more rapidly.

The dollar's value rose immediately after the report because higher interest would make the US currency more attractive to foreigners.

The vice-chairman of the Federal Reserve, Roger Ferguson, said that the Fed was wary about emerging price pressures.

"I think it's very important for us to continue to track pricing developments very closely," Mr Ferguson said, though he noted that some price rises in the March CPI came in areas like lodging and apparel that can be volatile.

Meanwhile, KBC Asset Management's chief economist Eoin Fahy predicted yesterday that the Fed would raise interest rates at least five more times this year, bringing its key interest rate to 4 per cent or more.

He said rate increases would be aimed at reassuring people that inflation was still under control, even though there was upward pressure on prices.