Consumer prices rose substantially more last year than they did in 1998, but all of the acceleration of inflation was due to sharply higher energy prices, and the nation's core inflation rate declined to 1.9 percent in 1999, the lowest since 1965, the Labor Department reported yesterday.

For last month alone, the consumer price index increased 0.2 percent and the core portion of the index, which excludes volatile food and energy prices, inched up 0.1 percent.

"Inflation remains the dog that didn't bark," said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York. "For all those fearful that the U.S. economy is overheating, the reality is that core inflation fell to a [business] cycle low in 1999, the ninth year of a boom.

"Even more eye-catching, consumer goods prices actually deflated last year. The CPI for goods, excluding food, energy and tobacco, fell 0.4 percent during 1999, even while consumer spending was jumping 5.5 percent. We expect any slowdown in consumer demand to lead to even more price discounting."

Many forecasters, like Steinberg, expect just such a slowing in consumer spending this year. But unlike him, they nevertheless predict that last year's large increase in oil prices and rising wages will push up the nation's core inflation rate later this year. The Merrill Lynch forecast calls for inflation to edge lower with both overall inflation and the core rate to be less than 2 percent this year.

However, Federal Reserve Chairman Alan Greenspan said in a New York speech Thursday night that he is very concerned that if economic growth continues at an unsustainably fast pace, that sooner or later it is likely to cause inflation to get worse. Virtually all financial analysts expect Fed officials to raise their target for overnight interest rates by a quarter-percentage point at a policymaking session early next month.

Some analysts have speculated that the policymakers might want to increase the key rate by half a percentage point because there has been little apparent impact on growth from three quarter-point increases in the second half of last year. But with yesterday's benign report on inflation, that seems unlikely, other analysts said.

According to the report, the overall CPI rose 2.7 percent last year, compared with only 1.6 percent in 1998. All of the acceleration was due to a big swing in energy prices from a decline of 8.8 percent in 1998 to an increase of 13.4 percent last year.

Gasoline prices at the pump, which rose 4.1 percent in December, were up 30.1 percent over the past 12 months. Nevertheless, the cost of a gallon of gasoline was still 6.1 percent lower than at its peak in November 1990. Fuel oil prices, which declined 15.2 percent in 1998, increased 30.9 percent in 1999, their largest annual advance since a 62 percent rise in 1979, the report said.

Food and beverage prices increased 2 percent last year, down from 2.3 percent in 1998. Housing costs rose slightly less, 2.2 percent compared with 2.3 percent. Apparel prices fell 0.5 percent last year, but that didn't quite match 1998's 0.7 percent decline. Recreation costs rose 0.8 percent, down from 1.2 percent in 1998.

On the other hand, medical care costs--which in the CPI include only consumers' out-of-pocket payments and not any costs paid by insurers--increased 3.7 percent, up from 3.4 percent the previous year. Similarly, education and communication prices rose more last year year, 1.6 percent, than 1998's 0.7 percent increase.

In a separate report, the Federal Reserve said its index of industrial production, which tracks the output of the nation's factories, mines and utilities, rose 0.4 percent last month with a surge in utility production accounting for a large share of the gain. Manufacturing output rose 0.2 percent, with most of that increase accounted for by high-tech items.

Ian Shephardson, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, N.Y., said that even with last month's relatively small increase in manufacturing production, "output rose at a 7.3 percent annualized pace in the fourth quarter as a whole. This was the best performance for two years."

Industry surveys suggest "manufacturing output will continue to pick up, but this is the only sector [of the economy] with spare labor, so it poses no inflation threat," Shephardson said.

CAPTION: Still Moderate (This graphic was not available)