U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year, weighed down by declining costs for services and energy products.
The Labor Department said on Thursday its producer price index for final demand slipped 0.1 percent last month, reversing June's 0.1 percent gain. July's drop was the largest since August 2016.
In the 12 months through July the PPI increased 1.9 percent after rising 2.0 percent in the year through June. Economists polled by Reuters had forecast the PPI ticking up 0.1 percent last month and climbing 2.2 percent from a year ago.
Though the link between the PPI and the Consumer Price Index has weakened, last month's drop in producer prices could worry Federal Reserve officials who have long argued that the moderation in inflation was temporary.
Fed Chair Janet Yellen told lawmakers last month that "some special factors" were partly responsible for the low inflation readings. Inflation, which has remained below the U.S. central bank's 2 percent target for five years, is being watched for clues on the timing of the next Fed interest rate increase.