Rising Prices Fuel Fears of Fed Rate Hike : Economy: ‘Beige book’ report clearly suggests the central bank feels inflation risks have risen.

WASHINGTON —  Prices are rising steadily in a vibrant national economy that is being powered by vigorous consumer spending, the Federal Reserve Board said Wednesday.

The Fed’s periodic “beige book” survey of regional economic conditions notes that widespread price increases are fueling inflation expectations.

Coming less than two weeks before its policy-setting Federal Open Market Committee meets, the latest survey suggests a seventh increase in interest rates is likely at the meeting Jan. 31 to Feb. 1. Six increases in 1994 have neither cooled economic activity nor slowed price increases.

“Economic expansion remained vibrant around much of the nation in recent months,” the Fed concluded from interviews with business people in the 12 Fed districts.

“The underlying momentum in consumer spending growth remained quite strong,” says the summary, prepared by the Federal Reserve Bank of Chicago.

It covers the period up to Jan. 10 and clearly implies that the Fed feels inflation risks have risen since the last survey was issued Dec. 7.

“Price increases seemed somewhat more widespread than were reported in early December, while higher inflationary expectations were apparent in business surveys,” the report says.

According to the San Francisco district’s survey, economic growth appeared to be accelerating slightly, bringing higher rates of resource utilization. Strengthening of business activity in California, Arizona and the Pacific Northwest appeared to have been only partly offset by a slight moderation in Idaho, Nevada and Utah.

The Fed survey found that manufacturing remains one of the brightest spots in the national economic picture, though the pace of expansion in industrial output was easing.

For example, the report says the outlook for auto production remains especially strong but that in Philadelphia and Chicago, growth in manufacturing output at the end of 1994 was less vigorous than earlier in the year. Jobs were plentiful and wages were not a major contributor to inflation pressures.

Separately, the Commerce Department reported that business inventories rose 0.7% in November, the eighth straight gain.