By John S. McClenahen Even as the U.S. labor market showed marked signs of improvement last month -- the Labor Department reported 308,000 jobs were created -- the real earnings of those working fell. That's because a 0.1% increase in average hourly earnings was more than offset by a 0.3% decrease in the average number of hours worked each week and a 0.5% increase in the Consumer Price Index (CPI) for urban wage earners and clerical workers, the Labor Department reported on April 14. Inflationary pressures are starting to build within the U.S. economy. Paced by higher energy prices, the CPI for all urban consumers rose 0.5% in March, its fourth consecutive monthly increase and considerably above the 0.3% that economists generally expected. For the first three months of 2004, consumer prices increased at a seasonally adjusted annual rate of 5.1%, compared with an increase of only 1.9% for all of 2003. The so-called core CPI, which excludes price changes for food and fuel, rose 0.4% in March, about twice the rate economists expected and the index's fourth consecutive monthly increase. "While the absolute level of inflation remains very mild, the trend is not the Fed's friend," believes UBS Investment Research, New York. "We believe a continuation of this acceleration, plus persistent stronger hiring, will prompt the [Federal Open Market Committee] to tighten [the money supply] by 25 basis points in August." The committee's target for the influential federal funds rate is now 1%. An increase of the size UBS foresees would raise the target rate to 1.25%, still quite low by historical standards.