Associated Press

WASHINGTON (AP) -- U.S. wholesale prices increased in July from June. Higher auto and food costs were offset by a drop in energy prices

The producer price index, which measures price changes before they reach the consumer, increased a seasonally adjusted 0.3 percent last month, the Labor Department reported Tuesday. That followed a 0.1 percent gain in June.

Overall, inflation remains mild. That gives the Federal Reserve more leeway to keep interest rates low in an effort to spur economic growth.

Energy prices fell for the fifth straight month. Gas costs declined 3.1 percent in July.

Wholesale prices rose only 0.5 percent in the past 12 months, the lowest since October 2009. That's down sharply from a recent peak of 7.1 percent in July.

Excluding food and energy costs, wholesale prices rose 0.4 percent in July from June.

Car prices rose 1.1 percent. Light truck prices increased 1.6 percent -- the largest gain since Nov. 2009.

One troubling sign is food prices rose 0.5 percent last month, matching the gain from June. That suggests the severe drought in the Midwest is driving costs higher. The dry weather has harmed a range of crops, most notably corn and soybeans.

Corn prices jumped 34.5 percent in July, the largest gain since Oct. 2006.

Food prices can be volatile, however, and economists downplayed the increase. Food costs have risen only 2.4 percent in the past 12 months.

Excluding food and energy costs, prices increased 2.5 percent in the 12 months that ended in July, the smallest year-over-year gain since June 2011.

Low inflation means consumers have more money to spend, which helps the economy. Still, the increase in corn prices could affect food prices in the coming months. Corn is used to make everything from cosmetics to cereal, soda, cake mixes and candy bars. It is also used as a feed for cattle and hogs. Pork, beef and veal prices also increased sharply in July.

The U.S. Agriculture Department said Friday that the U.S. corn harvest will fall to its lowest level in five years this year because of the drought.

Wholesale energy prices fell 0.4 percent in July. Oil and gas costs have increased recently and will probably affect August's data.

Gas prices are also starting to move back up. The nationwide price for a gallon of gas averaged $3.70 on Friday, up 7 cents in just the past week and 30 cents higher than a month ago.

Copyright 2012 The Associated Press.

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