Companies paid less for raw materials and factory goods in June, evidence that inflation pressures are weakening as gas prices fall.
The Producer Price Index, which measures price changes before they reach the consumer, declined 0.4 percent in June, the Labor Department said. That's the steepest drop since February 2010. Wholesale energy prices fell 2.8 percent, the biggest decline in nearly two years.
Gas prices peaked in early May near $4 a gallon, but have fallen steadily since. Prices at the pump averaged $3.65 on Wednesday, according to AAA.
Food prices rose 0.6 percent in June, mostly because of higher fruit and melon costs. Oranges jumped 41.2 percent, and carbonated soft drinks rose 7.5 percent, the most since the government began tracking that category in 1996.
Excluding the volatile food and energy categories, the so-called core index rose 0.3 percent, driven largely by a jump in prices for pickup trucks.
The core wholesale price index has risen 2.4 percent in the past year, the department said. That's up from a 2.1 percent increase in the 12 months ending in May.
Rapid rises in gas and food prices earlier this year raised fears that inflation could get out of hand. The index has risen 7 percent in the past twelve months, down from an annual increase of 7.3 percent in May.
But as gas and food prices ease, the threat of higher inflation appears to be receding.
Federal Reserve chairman Ben Bernanke told Congress Wednesday that recent price increases are likely to be temporary. Prices for commodities like oil and farm goods have stabilized, he said. And high unemployment makes it unlikely that workers can press for higher wages, which in turn makes it hard for companies to raise prices.
Fed policymakers expect core consumer inflation to average between 1.5 percent and 1.8 percent this year, Bernanke said. That's within the Fed's informal target range.