US producer prices post big drop, factory activity weak

US producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.

Separate reports on Wednesday showed an unexpected drop in US factory output last month.The US Labor Department said its seasonally adjusted producer price index fell 0.7 per cent last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6 per cent in March. A Reuters survey of economists had forecast prices received by the nation's farms, factories and refineries dropping 0.6 per cent last month.In another report, the Fed said industrial production dropped by 0.5 per cent last month, partly due to an unexpected 0.4 per cent drop in factory output. Economists had expected manufacturing production to rise 0.1 per cent.