Latest Signs Show U.S. Shifting Into Lower Gear : Economy: Producer price index, inventories climb in February. Markets take the news as a harbinger of inflation.

A raft of conflicting government economic reports released Wednesday suggest that the nation is slowly shifting to a lower gear.

Wholesale prices rose and factories operated at a rapid clip last month, the government said, while inventories climbed and the nation’s central bank said it saw the U.S. economy slowing.

Though rising wholesale prices and rapid industrial production normally signal the heating up of inflationary pressures, some economists saw February’s indicators as the last rush to meet heated consumer demand that prevailed at the end of last year.

But the growth of inventories suggests--as did Tuesday’s word of declining retail sales in February--that consumer demand has already slackened, leading analysts to predict that the rise in wholesale prices is less likely to be passed on to consumers.

The Labor Department reported that its producer price index, a measure of wholesale prices, rose 0.3% in February, higher than the 0.2% gain many economists had predicted. So far this year, wholesale prices have risen at an annual rate of 3.9%, much higher than the 1.7% increase for all of 1994.

The rise in such prices, spurred by high demand for wholesale products, is a delayed reaction to an earlier frenzy of consumer spending, said Robert G. Dederick, an economic consultant to Northern Trust Co. in Chicago. By now, however, “the consumer has slowed, but we haven’t had the full response through the system,” he said.

Nevertheless, the financial markets read the reports as bad news for future inflation. The Dow Jones industrial average ended 10.38 points lower Wednesday at 4,038.37, after closing Tuesday at a record high of 4,048.75.

The dollar, meanwhile, resumed its downward trend as talk faded among currency dealers that the German central bank might sanction an interest rate cut today, leaving the powerful German mark free to storm ahead.

In late New York trading, the dollar was at 1.3910 marks, compared to 1.4160 on Tuesday. It also fell as low as 89.30 Japanese yen, coming well within reach of the 88.75 postwar low established last week. In late New York trading, the dollar was at 89.70 yen, down from 90.85 on Tuesday.

Despite Wednesday’s economic news, analysts said they do not expect the Federal Reserve Board to raise interest rates at the March 28 meeting of the Fed’s policy-setting Federal Open Market Committee. But some now expect a rate hike in May.

For its part, the Fed said in its “beige book” report on economic conditions nationwide that the economy is growing less quickly and shows no signs that costlier raw materials are pushing up prices of consumer goods.

“The pace of the economic expansion has moderated over the past two months,” the central bank said.

Half the Fed’s regions were reporting slower growth, with retail sales and residential construction weaker over much of the country, according to the report. In the western United States, the Federal Reserve Bank of San Francisco reported that economic activity strengthened modestly, with some reports of slowing.

There was some pickup in both California and Oregon. Growth is easing from high levels in the Mountain states.

In any case, the February advance in wholesale prices was led by a 0.3% rise in food costs, which marked a sharp turnaround from January, when food costs dropped 0.6%.

Excluding the volatile food and energy sector, prices reflecting the so-called core rate of wholesale inflation were up 0.3%, reflecting higher costs for prescription drugs, alcoholic beverages and clothing.

The most troubling figures in the report were a 0.9% rise in the price of intermediate goods, which are one stage earlier in the processing cycle than finished goods.

In addition, prices of crude goods were up 1.5%, the biggest increase in 14 months.

Meanwhile, the Fed reported that industrial production was up 0.5% last month as the nation’s factories, mines and utilities operated at the fastest clip in 15 years. The revised gain for January was 0.2%.

American factories were running at 85.7% of capacity, up from 85.5% in January.

The gain in production was twice as large as economists had predicted but still below a huge 1.1% jump in December.

Normally, the February figures would suggest steady growth in the industrial sector and continued pressure on capacity use rates--a situation generally associated with increased inflationary pressures. But the other indicators suggested the economy is slowing.

Also on Wednesday, the Commerce Department said business inventories climbed in January for a 10th straight month, rising 0.9%.

Analysts said the latest gain could reflect an unwanted buildup of unsold goods because business sales during the month were up only 0.1%, far below December’s 1.4% gain.