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Feb. drop in wholesale prices biggest in 7 months

WASHINGTON - Prices at the wholesale level plunged last month by the largest amount in seven months as a big drop in energy prices offset higher food costs.

The Labor Department said yesterday that wholesale inflation dropped 0.6 percent in February, much larger than the 0.2 percent decline economists had expected. Excluding food and energy, prices edged up a slight 0.1 percent, in line with expectations.

The deep recession and weak economic rebound are keeping inflation at bay and giving the Federal Reserve leeway to maintain record low interest rates in an effort to build momentum from stronger economic growth.

While overall wholesale prices have risen 4.4 percent over the past 12 months, core inflation, which excludes energy and food, is up a much more subdued 1 percent over the past year.

"Underlying price pressures in the United States remain very subdued," said Paul Dales, an economist at Capital Economics.

Economists said they expect inflation pressures to ease even more in coming months because many of the dampening effects on inflation from the steep recession have yet to be felt.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said he expected the 12-month rate for core wholesale prices to dip from the current 1 percent to below zero in coming months.

The 0.6 percent fall in the Producer Price Index in February was the biggest decline since a 1.2 percent drop in July. In January, wholesale prices had surged by 1.4 percent, driven higher by rising energy costs. Last month, energy prices plunged by 2.9 percent with most of that decline reflecting a 7.4 percent drop in gasoline costs. - AP

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