Updated from 9:07 a.m. EDT

Wholesale prices fell in April for the first time in 14 months, driven largely by a sharp drop in the energy sector as the price of crude oil backed down from its March highs.

But excluding the effect of energy costs, prices rose modestly, indicating that input costs for most businesses are still on the rise.

The

Producer Price Index

fell 0.3% in April, the

Labor Department

said Friday, following their unnerving 1% rise in

March. Excluding the sometimes volatile food and energy components, however, prices continued to rise, by 0.1%. The numbers matched Wall Street expectations, and might not have a significant effect on financial markets Friday.

Overall producer prices were heavily influenced by a 4.1% drop in the energy sector, as crude oil and other energy prices fell from the highs they hit in March. On average, gasoline prices dropped 11.7%, the biggest drop since August 1989. Heating oil also registered a sharp 14% decline. In late March, the

Organization of Petroleum Exporting Countries

agreed to boost production, which sent crude oil prices to fall from their nine-year high around $34 a barrel. More recently, crude has sold for about $29.11 a barrel.

While the numbers paint a more modest picture of inflationary pressure in the realm of business-to-business sales, April's dip in wholesale inflation is not likely to deter

Federal Reserve

officials from raising interest rates when they meet on May 16.

Policymakers and economists are likely to take notice of rising pressure on intermediate goods, which are manufactured materials used to make finished goods. The prices of those goods rose 0.4% excluding food and energy.

"For a second straight month the price of goods at the intermediate stage of production rose by a sharp 0.4%, ex-food and fuel. Given the tight historical correlation between core intermediate goods prices and finished goods prices, the recent upswing in core intermediates is noteworthy," said Anthony Crescenzi, chief analyst at

Bondtalk.com

, an economics and fixed-income Web site.

Economists fear that rising costs for intermediate goods, along with upward pressure on wages, might eventually be pushed along to finished goods prices, resulting in inflation. In recent years, gains in the average productivity of U.S. workers, driven by strong advances in computer technology, have helped to offset rising input costs. But some measures show that productivity growth could be slowing.

Fed policymakers have hiked their benchmark interest rate five times in 0.25-percentage-point increments since last June in an attempt to slow economic growth and head off inflationary pressures. While growth remained strong, and inflation remained tame for most of that period, pressures have been starting to build as the strong labor market and heavy domestic demand have pushed wages and prices higher. March's 1% rise in the PPI was the largest in five years, though core producer prices rose only 0.1% in March.

The bulk of the rise in the core April PPI came from a 0.4% increase in passenger car prices, a 0.5% increase in prescription drug prices, and a 0.5% increase in alcoholic beverages. Tobacco prices, which had been volatile in recent months, were unchanged in April.

Prices for wholesale foods jumped 1% in April, which included a staggering 41.6% increase in the price of fresh eggs, a 2% increase in cooking oils, and a 7.2% increase in fish.

Meanwhile, computer prices continued falling in April, by 2.4% following March's 0.4% decline.

A separate report from the

Commerce Department

Friday also showed that

inventories

for U.S. businesses rose 0.3% in March, a slower pace from the 0.5% pace in February. Sales of items in those inventories, however, accelerated to 1.2%, indicating that companies' stockpiles are likely to further shrink as businesses prepare for an interest-rate-induced slowdown in consumer demand.