The Labor Department said Tuesday that wholesale prices dropped 0.9 percent last month. That's triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 percent.
Core inflation, which excludes energy and food, also was well-behaved. It dropped 0.1 percent in July, better than 0.1 percent gain economists expected.
The declines in the Producer Price Index showed wholesale inflation pressures were even more subdued than prices at the consumer level. The government last week reported that the Consumer Price Index was unchanged in July and over the past 12 months fell 2.1 percent, the biggest decline in nearly 60 years.
For July, wholesale energy prices fell 2.4 percent after having surged 6.6 percent in June. Gasoline dropped 10.2 percent and home heating oil plunged 11.9 percent.
Food prices at the wholesale level fell 1.5 percent last month, reversing a 1.1 percent rise in June. A big drop in vegetable prices led the overall decline, but beef and egg prices also fell.
The 6.8 percent decline in wholesale prices over the past year was the biggest since the government began keeping such records in 1947. It surpassed the 5.2 percent drop in the period ending in August 1949.
The 0.1 percent drop in core inflation left those prices rising 2.6 percent over the past 12 months. In July, prices for passenger cars fell 1.7 percent, the biggest decline in nearly three years.
The 1.8 percent gain in wholesale prices in June was the biggest one-month increase since November 2007. But economists said it represented a temporary burst and was not the beginning of a dangerous bout of spiraling prices.
Economists believe energy prices, which had propelled much of the gain, will level out and that the weak economy will keep the lid on overall inflation. Crude oil prices topped $72 a barrel in June but were trading below $67 per barrel Tuesday.
The Federal Reserve believes inflation will remain subdued for some time as the country struggles to emerge from the worst recession since World War II.
The Fed last week they planned to keep a key bank lending rate at a record low near zero for an "extended period," despite seeing signs that the economic downturn was "leveling out."