WASHINGTON - Inflation at the wholesale level plunged by the largest amount in nearly three years in February as the price of food and energy products including gasoline fell sharply.
The Labor Department reported that its Producer Price Index, which measures inflation before it reaches the consumer, fell by 1.4 percent last month after having risen by 0.3 percent in January.
The drop in overall prices was much larger than Wall Street had been expecting. However, outside of energy and food, core inflation at the wholesale level rose by 0.3 percent, a bigger increase than the 0.1 percent that analysts were forecasting.
The retreat in wholesale prices was the largest one-month decline since a similar 1.4 percent plunge in April 2003.
Inflation at the consumer level also slowed in February, with the government reporting last week that consumer prices edged up a tiny 0.1 percent in February after having jumped by 0.7 percent in January.
The moderation in inflation is certain to be discussed next week when the Federal Reserve meets to decide the course of interest rates. A 15th quarter-point increase in a key rate is widely expected, but many analysts believe that moderating inflation pressures may mean the Fed will raise rates only one more time this year before moving to the sidelines after a two-year campaign to tighten credit as a way to make sure that inflation stays under control.
As with consumer prices, a big factor in the good performance of wholesale inflation in February was energy, which fell by 4.7 percent last month. Gasoline prices were down 11 percent, the biggest drop in nearly three years, while natural gas prices fell by 4.1 percent and liquefied petroleum gas, used for heating homes, dropped by 14.3 percent.
Analysts said that the unusually mild winter meant that energy supplies could be rebuilt after falling to unusually low levels following last year's hurricanes which had caused widespread shutdowns of refineries along the Gulf Coast.
Food prices at the wholesale level also fell last week, declining by 2.7 percent, the biggest decline in nearly four years. The drop reflected widespread decreases across a number of food categories, led by a 27.1 percent drop in vegetable prices. Prices for fruits, eggs, processed chickens, port and beef were all down.
The 0.3 percent rise in core inflation, excluding food and energy, followed a 0.4 percent jump in January.
The increase in the core inflation rate reflected a 0.5 percent rise in light trucks, the category that includes sport utility vehicles. Prices were also up for pharmacy products, newspapers and other periodicals and cigarettes.