Apparel prices, which had dropped 1 percent in February, moved 1 percent higher in March. Shelter costs, which account for nearly one-third of the overall CPI, rose a firm 0.4 percent for a second month in a row.

The report could raise some questions about whether the
Federal Reserve will call a halt to a cycle of interest rate increases after the next policy meeting in May, particularly with oil costs striking record highs in recent days.

Despite the sharper-than-anticipated increase in core prices, the 12-month change held steady at 2.1 percent. The 12-month rate of overall consumer price inflation decelerated to 3.4 percent from the 3.6 percent rise registered in the period through February.

Energy costs shot up 1.3 percent last month, reversing a 1.2 percent February drop. Gasoline prices increased 3.6 percent, while natural gas costs fell 4.3 percent. Gasoline prices have continued to move higher this month.

The rise in consumer prices ate into Americans' spending power, with inflation-adjusted earnings falling 0.3 percent in March.

The 30-year fixed-rate mortgage, the industry benchmark, is also above last year's high of 6.33 percent, reached in the week of November 11 after climbing on and off from a 2005 low of 5.47 percent in June.

The MBA's seasonally adjusted purchase mortgage index fell 2.7 percent to 407.4 from the previous week's 417.7.

The index -- widely considered a timely gauge of U.S. home sales -- was also below its year-ago level of 466.7.

The group's seasonally adjusted index of refinancing applications decreased 0.4 percent to 1,526.1 compared to 1,532.4 the previous week. A year earlier the index stood at 1,870.0.

The refinance share of mortgage activity increased to 36.4 percent of total applications from 36.0 percent the previous week.

Fixed 15-year mortgage rates averaged 6.19 percent last week, up from 6.17 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.00 percent from 5.97 percent.

SIGNS OF COOLING IN HOUSING MARKET

Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment.

Analysts differ on whether or not there is a housing bubble, but most agree that the market is cooling off from its record run.

The MBA's soft data followed other reports this week that showed cooling in the U.S. housing sector.

The Commerce Department said on Tuesday the pace of U.S. housing construction slowed more than expected in March as both the rate of starts and permits declined to their lowest levels in a year.

Earlier in the week, the National Association of Home Builders said its influential index of U.S. home builder sentiment fell for a fourth consecutive month in April to its lowest level since November 2001.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.

But before investors pour the family fortune into the black goo, analysts are urging caution. Oil is a commodity whose price ultimately depends on supply and demand, they warn. Viewed from that perspective, oil prices already may be near their top - at least for now.

"I think we're due for a pause here," says Mark Routt, of Energy Security Analysis Inc. in Wakefield, Mass. "All the bad news you can think of is in the market, and here we are."

OPEC members have offered oil companies extra deliveries but have been turned down - an indication that there is plenty of crude oil available, Mr. Routt says. In addition, he points out that the current quarter is usually the low point in demand for crude oil. Refineries are busy conducting maintenance or shifting over to the summer blends of gasoline.

The current run-up in price, Routt contends, is more related to stresses in the phasing out of MTBE (methyl tertiary butyl ether), a fuel additive. It is being replaced by ethanol, which is in short supply.

"The price run-up is product-led," he says. "Once the refineries come back on stream, it should take some of the pressure off."

Role of investors is limited

Investors may play a role in short-term price swings.

"Almost everyday it seems some pension fund is dedicating a portion of its assets to invest in a commodity index," says John Kilduff, an oil trader at FIMAT, USA. "And, energy dominates most of these indexes."

Since 2004, Mr. Kilduff says some $125 billion has been directed into these funds. As the investment pool grows, the financial institutions running them buy futures contracts. "It causes more participation, it helps to push up prices," says Kilduff.

A clearer view of these new market participants has emerged, however, as some commodity exchanges have conducted studies of them, says John Felmy, chief economist at the American Petroleum Institute in Washington. "They don't seem be driving the market but following it," he says. "But they can have a transitory impact - the question is for how long."

Last week, the Energy Information Administration forecast peak gasoline prices in the mid-$2.70 a gallon level for the summer. Those levels have already been reached. According to GasPriceWatch.com, the national average is $2.76 a gallon.

Based on the current price of crude oil, Neil Gamson, an analyst at EIA, estimates the price of regular unleaded could "easily" rise another six to seven cents a gallon higher than anticipated. "There is some momentum to continue to rise over the next few weeks, but it might ease a little bit in the later half of the spring as the refining situation sorts itself out."

Consumers are likely to feel the impact in multiple ways, not just at the pump. Tuesday, the Labor Department reported the wholesale price of gasoline rose by 9.1 percent in March. This helped to push the Producer Price Index up by 0.5 percent in the month. Sometimes such spikes get passed on the form of surcharges or additional fees.

A view from the pump

In Boston, Tuesday, Robert Hill was filling up at a Shell station under a sign that posted "$2.69 9/10" for regular gas. "I just feel like it's unnecessary for the public to pay this amount of money," said the retired disabled Vietnam veteran. "I don't think we should be fighting this war. You're losing in two ways: the young men and women over there and at the pump."

Hill wasn't alone in blaming the high prices on America's foreign policy. Srini Prasad, a neurosurgeon, said the effects of the war were compounded by rising energy demand from China.

"Obviously I think it's expensive. It's exorbitant," said Mr. Prasad as he filled up his Mercedes sport-utility vehicle. "I'm kind of worried about the summer to be honest, because I think the prices are going to escalate."

Prasad acknowledged, however, that larger vehicles like his may be part of the problem.

"This car is four years old, so we didn't know how high the prices would be back then," he said. "The next car we bought was a hybrid."

School administrator Vince McKay of Newton, Mass., who was filling his late-model Saab at the same station, said he visited China a year and a half ago as part of an educational group.

"I saw first hand the worldwide demand. Why should we be surprised?" Mr. McKay asked. "This country has got to get serious about conservation and we've got to do it now."

But for McKay, getting "serious" about conservation may mean tough love for motorists like Prasad.

"Personally, I think the government should buy up all the SUVs and crush them," McKay said with a smile.

China's appetite for oil also affects its stance on Iran, where a growing confrontation with the United States over nuclear programs has already unsettled oil markets. China has invested heavily in Iran, and as a permanent member of the Security Council, its position on the question of sanctions is crucial.

Even as Mr. Hu arrived in Seattle on Tuesday, Chinese and American negotiators were debating a proposal for the two presidents to announce a joint study of both nations' energy needs as a way to ward off conflict in coming decades, when China's rapidly expanding need for imported energy to sustain its growth may collide with the needs of the United States, Europe and Japan.

In 2004 China used some 6.5 million barrels of oil a day and overtook Japan as the world's second largest user of petroleum products. The largest, the United States, consumes about 20 million barrels a day.

The administration's focus on China's quest for oil was signaled when it published a revised National Security Strategy last month, approved by Mr. Bush, that contained a pointed new entry about China.

That country's leaders, the document declared, are "expanding trade, but acting as if they can somehow 'lock up' energy supplies around the world or seek to direct markets rather than opening them up, as if they can follow a mercantilism borrowed from a discredited era."

Mercantilism was a post-feudal doctrine of national economic health through protectionism, foreign trade and exports, but administration officials have repeatedly used it to describe China, just as they once used it in the 1980's to describe Japan's approach to global trade.

In the case of China, the term is increasingly employed to paint a picture of a 21st-century version of the Great Game, the 19th-century maneuvering for primacy in Central Asia, in which China's search for oil is merging with its desire for greater influence, from Africa to Latin America to the Middle East.

"They are buying long-term supplies wherever they find them, including in unsavory places like Sudan, Iran and Burma, where we won't buy," said Michael J. Green, a Georgetown University professor who directed policy on China at the National Security Council until late last year. "They say it is benign, because they don't interfere with the internal affairs of other nations. And we say it is anything but benign, because it finances these regimes' bad behavior."

The public discussion began in September, when the deputy secretary of state, Robert B. Zoellick, urged China to become a "responsible stakeholder" on the world stage. He suggested that China should rethink a policy of buying oil from the Burmese or the Sudanese simply because it could. "China's involvement with troublesome states indicates at best a blindness to consequences, and at worst something more ominous," Mr. Zoellick said at the time.

Nonetheless, Chinese officials said they liked much of his commentary because it suggested an equality between China as a rising power and the United States as an established one. So far, however, the officials have not responded to the administration's call to rethink their policy.

In an interview on Tuesday, Mr. Zoellick said that he did not mean to suggest that China was deliberately trying to funnel oil from world markets, but rather that its vast energy bureaucracy was racing along that path in response to commands to keep the economy growing.

During the visit of Mr. Hu, he said, "we are seeking to steer them from a narrow perspective to a recognition that together we need to expand sources of supply, including non-oil and gas, and increase efficiency."

The issue is likely to come to a particular head over Iran. Sinopec, China's state-owned oil giant, signed a $70 billion deal with the Iranians in November 2004 to develop the Yadavaran oil field. The United States Department of Energy believes the field could "eventually produce 300,000 barrels a day."

China's interest in keeping that investment healthy, officials say, is one reason it has refused to support sanctions against Iran for defying the Security Council over the country's enrichment of uranium.

A senior administration official, briefing reporters at the White House on Monday on the condition that he not be identified, said, "I think the Chinese have come around to a point of realizing that we need to stand firm on the issue of the Iranian nuclear program."

But two other officials expressed doubts, saying China's sensitivity about its own oil supplies was one reason President Bush had rejected any sanctions against Iran that would be aimed at its oil sector. "Getting the Chinese to come around on Iran," said one of the officials, who has been preparing for the meeting of the two leaders, "is going to be the great test of whether we're getting through on these issues."

Outside experts warn that the competition can be overblown.

"I sense that there is a diversity of views on this among the Chinese I speak to, and there are some who are questioning this mercantilist policy," said Elizabeth C. Economy, of the Council on Foreign Relations, and the author of "The River Runs Black," a study of the environmental impact of China's growth.

"If China has a prayer of continuing to grow at this rate, they have to move to far more efficient ways of using energy," she said, making a point that President Bush has made repeatedly in recent weeks.

Bates Gill, a China scholar at the Center for Strategic and International Studies here, warned recently that the United States had "thus far tended to over-exaggerate this issue of energy in our ever desperate search to find yet another major competitor with which to pick a fight."

With huge coal reserves, China imports only about 12 percent of its energy, Mr. Gill noted. It is rapidly expanding its use of nuclear power, though most experts believe it cannot meet its goals for the construction of new plants.

Mr. Bush's aides counter, however, that the growth in the Chinese automobile market is causing a surge in oil imports; the Energy Department estimates that China's demand will more than double, to 14.2 million barrels a day, by 2025. More than two-thirds of that will be imported, the department estimated last year. The United States currently imports about 60 percent of its daily 20 million barrels. Such figures led the White House to order a study last year of the potential political effects of that rise in demand.

Mr. Green, who left the National Security Council in December, recalled a visit from a senior Chinese official who tried to explain that China was only seeking business deals, and was not trying to influence countries where it was doing business.

"He used the example of Sudan and he said, 'Look, you know, we don't care about internal issues like genocide, we only care about the oil because we need the resources.' "

"And I said, 'Well look, that's mercantilism.' And the Chinese translator had trouble translating "mercantilism" and they had a big debate about it, and we figured it out. And then they had a big debate about whether I meant that as a good thing or a bad thing."

Schieffer said the idea, which was proposed by Japanese Economy,Trade and Industry Minister Toshihiro Nikai earlier this month, is to "exclude the United States from Asia" and makes his country "uncomfortable."

"We believe as a Pacific nation, we have tremendous interests in Asia and we want to be a part of Asia," the Ambassador was quoted as addressing a lecture meeting in Tokyo.

Nikai proposed earlier this month that Japan should ask the 10-member Association of Southeast Asian Nations, China, South Korea,India, Australia and New Zealand to consider launching in 2008 regional FTA talks, whose aim is to establish an East Asian economic community, and planned to include the idea in the ministry's new global economic strategy.

Robert Kuttner recently argued in the Boston Globe that while people are blaming undocumented workers for driving down wages, the real villains are "the people running the government, who have made sure that the lion's share of the productivity gains go to the richest 1 percent of Americans. With different tax, labor, health and housing policies, native-born workers and immigrants alike could get a fairer share of our productive economy." Kuttner points to Census data showing that "median household income fell 3.8 percent, or $1,700, from 1999 to 2004... during a period when average productivity rose 3 percent per year." And as income is falling, working people are increasingly squeezed. Costs for housing, healthcare, education and childcare rose 46 percent between 1991 and 2002, according to economist Jared Bernstein of the Economic Policy Institute.

And the situation is getting worse. Look at the Delphi Corporation's moves. The company asked a bankruptcy judge to void its union contracts so it could lower wages and benefits. CEO Steve Miller played the ever reliable global-competition card, saying in a recent Washington Post article, "At the end of the day, Delphi must be competitive in the global marketplace." But as Kate Bronfenbrenner, director of labor education research at Cornell University, makes clear, this new tactic will further erode labor's power in the workplace. "What in our laws and in our democracy gives a bankruptcy judge the right to take away freedom of association and collective bargaining?" Bronfenbrenner asks. "Bankruptcy judges should not have that power."

In the current climate--with tax cuts for the wealthiest Americans, a minimum wage frozen for eight years in a GOP-dominated Congress, deterioration of labor's power in the workplace and corporate-written free-trade agreements that exacerbate these trends--it is heartening to hear Sherrod Brown make the case that "a hard day's work should mean a fair day's pay."

The Democratic Party needs to find its moral compass, its heart and soul. Closing the gap between workers' pay and CEO compensation and raising the minimum wage (a movement that is under way in many states)--is what heart and soul are all about.