Soaring oil prices triggered by the Mideast crisis are working their way through an already weakening U.S. economy, raising the nation's inflation rate and discouraging both consumer spending and factory production, government reports confirmed yesterday.

A trio of reports on economic performance during August confirmed that the economy, which has been growing very slowly for more than a year, was jolted by the big jump in oil prices that followed the Aug. 2 Iraqi invasion of Kuwait. Many forecasters -- though not all -- now believe the economy will slip into a relatively mild recession later this year, with unemployment rising and the nation's output contracting.

"The first shot of oil and energy inflation suggests a wave of inflation in the U.S. economy that will be in high single digits for three to six months. In turn, it will squeeze purchasing power enough to produce a substantial recession," said Allen Sinai, chief economist at the Boston Co., an economic and investment advisory firm. "The worst is yet to come."

The stock market continued to decline on the news, with the Dow Jones industrial average falling 18.56 points yesterday to close at 2564.11.

Oil prices have continued to rise this month, promising further increases in prices this fall. There is growing evidence that companies are passing on to their customers the cost of increased fuel prices -- beginning with fuel dealers and service stations and continuing through the commercial chain to airlines, transportation companies and other fuel users.

The worst news yesterday was a report from the Labor Department on prices at the producer level that showed a surge of 1.3 percent last month for finished goods -- goods ready to be sold to final users. This translates into a 16.4 percent annual increase -- more than five times the 3 percent rate that held for January through July.

Yesterday's producer prices numbers include increases of 16.9 percent for gasoline and 38.8 percent for home heating oil. These higher prices from oil refiners have already caused service stations and fuel oil dealers to boost charges to consumers. With fuel prices claiming a bigger share of consumer income, sales in other parts of the economy appeared to be suffering the consequences.

The Commerce Department reported that retail sales fell 0.6 percent last month, to $149.2 billion, with declines recorded for every type of store and dealer except those selling home furnishings and gasoline. The large rise in retail gasoline prices helped increase fuel sales by 6.4 percent last month, to $10.7 billion.

And on a third front, the Federal Reserve Board said the nation's factories, mines and utilities were slowing down. Industrial production dropped by 0.2 percent in August as a result of small but widespread declines among many market and industry groups. In the past year, the Fed reported, its index of industrial production has risen only 1.5 percent.

Despite the gloomy reports, some forecasters said the economy has enough momentum to avoid a recession. Gail Fosler at the Conference Board, a business research organization, was among the optimists, predicting that the economy will pick up steam in the final three months of the year rather than decline.

"Although the economy is growing slowly, it is not in a recession," Fosler said. "Nor will it head into a recession solely on the basis of higher oil prices." On the other hand, the higher oil prices will hold down corporate profits and lift interest rates, she added.

Because the Commerce Department sampled producer prices in mid-month, more recent increases in crude oil prices will be reflected in the September index when it is published next month. Prices passed $32 a barrel on futures markets yesterday before falling back a bit, compared with about $18 before the Iraqi invasion of Kuwait.

Just as service station operators and fuel oil dealers are passing on the higher wholesale prices for gasoline and fuel oil, so are many other fuel users. Several airlines, including USAir, American, Delta and Eastern, have announced fare increases in recent days to try to recover part of the large increase in their bills for jet fuel.

Similarly, transportation companies, such as Melton Truck Lines in Shreveport, La., have imposed fuel surcharges to offset the increase in diesel fuel costs. Melton, which runs about 350 trucks hauling building materials, farm machinery and other goods up and down the Mississippi River Valley, is adding a mileage charge tied to increases in its fuel costs since July 29.

"I would be surprised if you found someone not recovering these increased costs," said Melton Chairman Duncan McRae.

In this fashion, the higher oil prices will continue to filter throughout the U.S. and world economies.

Robert Dederick of the Northern Trust Co. of Chicago was somewhat more cautious than the Boston Co.'s Sinai. The increase in oil prices could "well be the shock that broke the camel's back because the back was already bending," Dederick said, but he did not necessarily foresee a serious recession.

A number of analysts said the key to the short-term economic outlook likely will be how much the higher oil prices and fear of war in the Middle East will damage consumers' confidence and erode their willingness to spend.

David Wyss, an economist at DRI/McGraw Hill in Lexington, Mass., noted, "We've got at least a couple more months of prices increases. ... It's the worst of all worlds -- higher inflation and weakening demand. It's a hard combination to fight. You combine the {price} number with the weak retail number and the economy has real trouble."

Not all of the increase in finished goods prices was due to energy. Consumer food prices rose 0.8 percent, their largest monthly increase since January when cold weather had badly damaged fruit and vegetable crops. Food prices were flat in July and fell 0.4 percent in June.