Wholesale prices post biggest decline in months

U.S. wholesale prices in February posted their biggest drop in seven months as gasoline costs fell sharply, leaving scope for the Federal Reserve to keep short-term interest rates at a record low. The producer price index for finished goods dropped by a seasonally adjusted 0.6 percent on the month in February, the Labor Department said Wednesday, following an unrevised 1.4 percent increase in January. The core PPI, which excludes volatile energy and food prices and is more closely watched by the Fed, rose 0.1 percent last month after increasing by 0.3 percent in January, according to the Wall Street Journal. 

Economists polled by Dow Jones Newswires were expecting wholesale prices to decline by a more moderate 0.3% last month. Core producer prices were seen rising 0.1 percent.

Investors are starting to pay more attention to inflation now that the U.S. economy's recovery is more firmly in place. Some inflation readings have actually been falling recently, giving the Fed continued reason to keep interest rates near zero to bolster the economy's recovery.

Fed officials ended a meeting of their latest policy committee Tuesday noting the U.S. economy is improving, but signaled that it will be at least several more months before they raise short-term interest rates. They repeated that inflation is likely to remain subdued for "some time."

The report Wednesday showed that for the 12 months ended February 2010, the unadjusted producer price index rose by 4.4 percent, moderating from a 4.6 percent annual increase in January.