Charlie Neibergall and Paul Sancy/AP

(Top) Meat department manager Kevin Morlan arranges packages of pork at a Dahl’s grocery store in Des Moines, Iowa. Pricier gas and food are threatening to slow the economy at a crucial time. Consumer prices rose 0.5 percent last month, the Labor Department said Friday.

(Bottom) Line workers assemble a 2012 Ford Focus at the Michigan Assembly Plant in Wayne. Americans spent more on food and gas in March, but so far that hasn’t put a damper on factory production, which rose in March for the ninth consecutive month.

WASHINGTON -- Americans are paying more for food and gas, a trend that threatens to slow the economy at a crucial time.

So far, the spike in such necessities hasn't stopped businesses from stepping up hiring or slowed factory production, which rose in March for the ninth straight month. Still, higher gas prices have led some economists to lower their forecasts for growth for the January-March quarter.

Consumer prices rose 0.5 percent last month, the Labor Department said Friday. Nearly all of the gains came from pricier gas and food.

When taking out those two volatile categories, core inflation was relatively flat. But at the same time, employees are seeing only small, if any, pay increases.

"People have less money to spend on goods other than food and energy and that is going to cause the expansion to slow," said economist Joel Naroff of Naroff Economic Advisors.

The spike in prices is hitting most Americans just as the economy is gaining momentum. Businesses added more than 200,000 jobs in March and February, the best two-month hiring stretch in four years. And the unemployment rate has fallen to a two-year low of 8.8 percent.

Consumers also have a little more money to spend this year, thanks to a one-year cut in Social Security taxes.

But most of the extra $1,000 to $2,000 per person is filling the gas tank. The national average for a gallon was $3.82 on Friday, nearly $1 more than a year ago. In five states, the average price is exceeding $4 a gallon.

How big the economic impact will be is the critical question. Many analysts expect food prices to come down and oil prices to stabilize by summer. If companies continue to create jobs, consumer spending will rise faster. That would give the economy a boost by fall.

U.S. manufacturers are seeing more business, according to a separate report on Friday from the Federal Reserve. Factory output rose in March, bolstered in part by a jump in auto production.

One concern is automakers are bracing for some disruptions in the supply of parts from Japan, which is recovering from a 9.0-magnitude earthquake and tsunami that caused widespread damage.

Nigel Gault, chief U.S. economist at IHS Global Insight, predicts the economy will grow only 1.8 percent in the January-March period, down from an earlier estimate of above 3 percent. Rising inflation likely will cut consumer spending growth to half its pace in the previous quarter.

Still, rising exports and business purchases of computers and other equipment should keep factories humming even if consumers pull back. And companies likely will keep hiring. For those reasons, Gault expects economic growth to pick up a little in the April-June quarter, and then rebound to nearly 4 percent in the second half of the year.

Oil has soared 28 percent to about $109 a barrel since Middle East turmoil spread to Libya in mid-February. If unrest stops spreading and Americans buy less fuel, oil and gas prices could decline.

Even so, some department stores are not taking chances. Many are cutting their fall orders, concerned that consumers will have less to spend. Kohl's Inc. is trimming them by more than 10 percent, according to Citigroup Global Markets analyst Deborah Weinswig.

Clothing prices fell 0.5 percent in March, the second straight monthly decline. But prices are expected to rise in the coming months to offset rising labor costs in China and higher cotton costs.

"I think the biggest challenge is not just the price of our ... apparel products," said Blake Jorgensen, chief financial officer of Levi Strauss & Co. during an address to analysts on Tuesday. "It's trying to understand consumers' reaction to (all) price increases."

Anne D'Innocenzio and Daniel Wagner of the AP contributed to this report.