GARRISONVILLE, Va. -- When Paddy's Steakhouse & Pub opened in December 2002, a 12-ounce prime rib sold for $15.99. Today, after a run-up in beef prices and a growing clientele, the menu lists that same cut for $19.99.

"You don't want to change your prices because people will think that you're trying to rip them off," said owner Michael Brosnan, who absorbed the higher costs for several months before reprinting the menus. "But you've got to do what you've got to do."

In fact, with energy and raw material costs on the rise and demand for goods and services picking up, gasoline, milk, soybeans, paper products, lodging and clothing are all more expensive these days. As economist Sherry Cooper sees it, there is "a whiff of inflation in the air."

The ability to raise prices is good news for many U.S. industries after several tough years, but consumers hooked on cheap goods and low interest rates are in for some disappointment, said Cooper, chief economist at BMO Nesbitt Burns Securities in Chicago.

The Labor Department reported this week that consumer prices rose 0.5 percent in March, bringing the annual rate of growth for the first three months of the year to 5.1 percent -- two and a-half times the rate in 2003.

The data surprised many on Wall Street, sending stock prices down and bond prices higher amid expectations that the Federal Reserve would begin raising short-term interest rates from record lows sooner rather than later.

Economists expect the Federal Reserve to respond to these trends by raising interest rates this summer.

While this could cause stock prices to retreat and the housing market to lose some of its steam, the modest inflation percolating nowadays is "a cause for celebration, not consternation," considering that just a few months ago some financial experts were worried about deflation, which could put the economy into a tailspin, said Robert Barbera, chief economist at ITG/Hoenig in Rye Brook, N.Y.

Shoppers and small business owners said the government report on consumer prices merely confirmed what they already knew: goods cost more.

Milk prices, which hit a 25-year low in 2003, have rebounded to record highs, as supplies tighten and the cost of feed for cattle goes up. Nationwide, a gallon of milk averaged $3 at the beginning of April, up 15 cents from the previous month, and the Agriculture Department said dairy products could cost 4 percent to 6 percent more this year.

Indeed, it is the rising costs of soybeans and corn, which are fed to cattle, that has made beef more expensive in the grocery store and at restaurants like Paddy's Steakhouse.

But this has been a boon to people like Sussex County, Va., farmer Keith Dunn. A year ago, Dunn was earning razor-thin profits, hindered by rising costs for diesel and fertilizer, as well as recent agriculture legislation that made peanuts less profitable. Now prices for soybeans and corn are up more than 50 percent from last year.

The upswing in the agriculture business has also helped Fisher Barton Inc., a Watertown, Wis., maker of farm equipment and lawnmower blades, helping to offset ballooning operating costs due to soaring prices for steel and copper, two key raw materials. Fisher Barton has had to raise prices, at least temporarily, president Dick Wilkey said.