August 16, 2004 -- Wholesale prices increased modestly in July, as a drop in food prices offset higher energy costs, according to a report from the Labor Department.

The producer price index rose 0.1 percent last month, after falling 0.3 percent in June. The increase was less than expected, as economists forecasted a 0.2 percent increase. Core prices, which exclude volatile food and energy prices, also grew 0.1 percent in July.

Energy prices grew at the fastest pace since January, soaring 2.3 percent, undoing June's 1.6 percent decline. Gasoline prices advanced 5.4 percent in July, following a 5.2 percent drop in June.

Food prices reversed most of the damage inflicted by energy prices, falling 1.6 percent, the largest drop since April 2002.

Producer prices have increased 4.0 percent over the past 12 months, a result due largely to the high cost of oil. Core prices are up 1.7 percent over the same period. Federal Reserve policy makers generally prefer a core rate under 2 percent.

The easing of wholesale prices is being felt throughout the supply chain, as hikes are becoming less frequent among small businesses, according to the National Federation of Independent Business. In the lobbying group's July optimism index, only 20 percent of the firms polled reported higher selling prices, a nine-point drop from June.