US producer prices fell a surprisingly steep 1.4 per cent last month, the biggest drop in nearly three years, as energy and food costs tumbled but other prices rose 0.3 per cent in a sign of bubbling price pressures.
The drop in the producer price index, a gauge of prices paid to farms, factories and refineries, was much larger than expected on Wall Street, where economists had forecast only a 0.2 per cent decline.
But the rise in the core index, which strips out volatile food and energy prices, was steeper than the 0.1 per cent gain of the consensus forecast.
Energy prices skidded 4.7 per cent, the biggest decline since April 2003, and food costs slid 2.7 per cent, their biggest drop since April 2002.
Overall, the decline in producer prices was the largest since a matching 1.4 per cent decrease in April 2003. While economists have said retreating energy costs are helping to improve the outlook for potential inflation, the rise in wholesale core prices could renew inflation worries that had been set aside in the face of tame consumer price data.
Overall producer prices have risen 3.7 per cent over the past 12 months. That marks a slowdown from the 5.7 per cent gain registered through January.
Economists have noted that persistently high energy prices have not pushed up a wider array of costs. The department said last week that consumer prices had risen just 0.1 per cent in February, both overall and excluding food and energy.
The faster gain in core prices at the wholesale level could foster concerns that businesses will push harder to raise selling prices or suffer profit pressure.
The Federal Reserve is expected to raise benchmark interest rates next week by a quarter percentage point to 4.75 per cent, a 15th consecutive increase aimed at keeping inflation at bay.