04/12/2013 08:35 EDT | Updated 06/12/2013 05:12 EDT

Wholesale prices drop 0.6 per cent in March, biggest decline in 10 months, as gas prices plunge

WASHINGTON - A measure of wholesale prices fell in March by the largest amount in 10 months, reflecting a big drop in gasoline prices.

The producer price index fell 0.6 per cent last month compared with February, the Labor Department said Friday. In February, wholesale prices had jumped 0.7 per cent.

The March decline reflected a 6.8 per cent plunge in gas prices, the sharpest drop since November. Overall energy prices fell 3.4 per cent, the biggest decline in three years. Food prices posted a 0.8 per cent rise in March.

Core inflation, which excludes volatile food and energy prices, rose 0.2 per cent in March. Wholesale and retail inflation have remained mild, apart from sharp swings in gas prices.

For the 12 months ending in March, wholesale prices are up 1.1 per cent, the smallest 12-month rise since last July.

Core inflation at the wholesale level is up 1.7 per cent in the past 12 months, the smallest 12-month gain since early 2011.

Mild inflation gives the Fed more latitude to continue with its aggressive policies to spur more economic growth by keeping interest rates at record low levels.

Gas prices spiked earlier this year. The national price for a gallon of gasoline jumped from $3.42 on Jan. 31 to $3.78 on Feb. 28. But since that time, prices have retreated. A gallon of regular gas averaged $3.56 on Thursday.

Low inflation and falling gas prices mean consumers can spend more on other goods.

As long as the inflation rate stays mild, the Fed has said it plans to keep the short-term interest rate it controls at a record low near zero until the unemployment rate falls below 6.5 per cent. Unemployment in March dropped to a four-year low of 7.6 per cent but the number of jobs created slowed to just 88,000, the smallest in nine months.

A rise in wholesale prices does not always mean consumers will soon pay more. High unemployment and weak pay gains have made it difficult for retailers to pass on higher costs to consumers.

The government's consumer price index rose 0.7 per cent in February, the biggest one-month jump in more than three years. But three-fourths of that increased reflected a surge in gas prices. Outside of energy, inflation was mostly modest.

For the 12 months ending in February, consumer prices increased a modest 2 per cent.