Washington, May 16 (Bloomberg) -- U.S. consumer prices rose through April at a slower annual rate than a year ago, evidence inflation is tame enough to enable the Federal Reserve to continue lowering interest rates, a government report showed today. The consumer price index rose 0.3 percent in April, restrained by the largest decline in clothing costs in more than 50 years, the Labor Department said. Since the first of the year, the CPI is increasing at a 3.8 percent annual rate, compared with a 4 percent pace in the first four months of 2000. Meanwhile, the economy grew over the past three quarters at the slowest rate in five years. Economic ``weakness, not inflation, is still the main concern'' for Fed policy makers, said Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston. Fed policy makers lowered the benchmark lending rate yesterday a fifth time this year and said in a statement that inflation poses less of a threat to the economy than sluggish growth. April's rise in prices followed an increase of 0.1 percent in March and was smaller than the 0.4 percent expected by analysts. Decreases in clothing and computer costs were offset by a rise in prices of energy, particularly gasoline, and tobacco. The core index, which excludes energy and food, increased 0.2 percent for a second straight month and is running at a 3.3 percent annual pace, compared with a 2.9 percent rate last year. Housing Starts The one bright spot in the economy, housing, continued to show resilience last month. Builders broke ground on new homes at an annual pace of 1.609 million units last month, up 1.5 percent, the Commerce Department said. Yesterday, Fed policy makers cut the overnight bank lending rate by half a percentage point to 4 percent and signaled they're prepared to reduce it again, if needed, to spur the economy. Growth slowed to a 1.5 percent annual pace between October and March, the slowest six-month period since a 1.1 percent rate of increase in the first half of 1995. They also tried to assuage investor concerns that accelerating inflation was becoming a threat. ``With pressures on labor and product markets easing, inflation is expected to remain contained,'' central bankers said in a statement accompanying yesterday's rate cut. Stocks rallied on expectations of a rebound in profit growth this year. The Dow Jones Industrial Average climbed 343 points, or 3.2 percent, to close at 11216.12, the first time above 11,000 since September. The Nasdaq Composite Index rose 81 points, or 3.9 percent, to close at 2166.52. The U.S. Treasury's 10-year note rose 1/8 point, pushing down its yield a basis point to 5.46 percent. Corporate Profits The lack of pricing power is taking a toll on corporate profits. Federated Department Stores Inc., the owner of Macy's, Lazarus and other chains, said fiscal first-quarter earning dropped 3.4 percent because of steep price markdowns taken to clear out merchandise. TJX Cos. said yesterday that its fiscal first-quarter profit fell 5 percent as the owner of the T.J. Maxx and Marshalls clothing chains cut prices. The price of clothing plunged 1.3 percent in April after rising 0.4 percent in March, the Labor Department's figures showed. Last month's decline was the largest since January 1949 and reflected discounts by retailers in advance of the Easter holiday. What's more, the cost of personal computers fell 2.2 percent after falling 4.4 percent in March. Energy costs, which account for about a 10th of the CPI, rose 1.8 percent in April, compared with a 2.1 percent decline in March. The price of gasoline surged 5 percent, the largest increase since September. Consumers paid on average as much as $1.66 a gallon for gasoline at the pump last month, up 15 percent from March, according to statistics from the Department of Energy. The average price of self-serve gasoline climbed to $1.748 a gallon last week, the Energy Department said Monday. Tobacco Costs Rise Prices of tobacco rose 4 percent, the biggest increase in a year. Philip Morris Cos. and R.J. Reynolds Tobacco Holdings Inc., the two largest U.S. cigarette makers, raised wholesale prices by 14 cents a pack in April. Wholesale cigarette prices have risen about 74 percent since the industry settled a lawsuit with 46 states in 1998 for $206 billion, analysts said. Low inflation has given Fed policy makers room to lower interest rates this year and that's kept mortgage rates favorable for home sales. Mortgage rates at the lowest in two years, a record pace of new home sales, and record order backlogs are keeping D.R. Horton Inc. and other builders busy even as the rest of the economy slumps. ``Overall, housing remains upbeat,'' said Ian Morris, an economist at HSBC Securities Inc. in New York. Housing Starts Starts of single-family homes rose 6.7 percent in April to a 1.288 million-unit annual rate after falling 6.3 percent in March. April starts of multifamily homes fell 15 percent to a rate of 321,000 units after rising 13 percent. The calculation for multifamily construction had to be estimated because revised procedures did not allow for reliable measures, the Commerce Department said. By region, starts rose in the Northeast, West and South and fell in the Midwest. Thirty-year mortgage rates averaged about 7 percent during the first four months of the year, the lowest since early 1999. The rate climbed to a five-year high of 8.64 percent in mid-May of 2000. The rate reached 6.89 percent in March, which was the lowest since April 1999. In March, U.S. sales of new single-family homes surged to a record 1.02 million-unit annual pace. With so many houses on order, builders such as Toll Brothers Inc., and D.R. Horton have watched backlogs surge. Builder Backlogs Toll Brothers, a luxury homebuilder in Huntingdon Valley, Pennsylvania, had a record backlog of 3,112 houses at the end of April. D.R. Horton had a record backlog of 9,709 houses under contract at the end of March. Lumber futures on the Chicago Mercantile Exchange surged to a 14-month high after the housing starts report was released. Still, housing's outlook may be dimming. Mortgage rates crept up to as high as 7.14 percent earlier this month, the second- highest rate this year. What's more, the unemployment rate rose to 4.5 percent in April, the highest in 2 1/2 years, which may limit home-buying. Building permits, an indicator of future construction, fell 2.5 percent to 1.587 million units at an annual rate after falling 2.2 percent in March. That is why ``there is almost no doubt that housing starts will decline'' this year, said David Orr, chief economist at First Union Corp. in Charlotte. ``Even though housing isn't collapsing, it isn't providing growth.''