US producer prices edged up a smaller-than-expected 0.1 per cent last month, while core prices posted a surprise drop of 0.4 per cent in the biggest fall since April 2003.
The decline in the core producer price index, which strips out volatile food and energy costs, reflected a 2.6 per cent drop in car prices and a 3.4 per cent decline in the price of light trucks and SUVs, the US government's Labor Department said.
But even stripping out those sharp price declines, core producer prices would have been unchanged, it said.
Wall Street economists had expected the report, which comes one day ahead of a Federal Reserve meeting on interest rates, to show both overall and core producer prices had risen 0.2 per cent last month.
The data is likely to bolster a view in financial markets that the central bank will hold interest rates steady not just tomorrow, but until the end of the year.
Energy prices at the producer level rose just 0.3 per cent in August after a sharp gain of 1.3 per cent in July. Many analysts think they are set to moderate further given that US crude oil futures prices have plummeted from a high of $78.40 a barrel in July to around $64 a barrel.
The drop in the price automakers received for cars was the largest since a matching 2.6 per cent decline in October 2005, while the plunge in light truck prices was the biggest since April 2003.
Wholesale food prices shot up 1.4 per cent, the department said.