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Inflation at the wholesale level was much more benign last month than economists thought, and stripping out food and energy, prices actually declined.

The producer price index for August rose 0.1%, the Labor Department's Bureau of Labor Statistics said Tuesday. The advance followed increases of 0.1% in July and 0.5% in June.

Excluding the volatile prices of food and energy, the core PPI dropped 0.4% last month after a decline of 0.3% in July. A


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survey of economists had produced an average estimate calling for a 0.3% increase in the overall PPI and a 0.2% gain in the core rate.

The data come a day ahead of a meeting of

Federal Reserve

policymakers and add to the evidence supporting the view that the central bank will again leave rates unchanged. Last week, the consumer price index and the core PPI both rose 0.2%, tame readings that matched expectations.

At its meeting last month, the Fed kept its fed funds target rate at 5.25%, the first time it held its ground in more than two years. Before the gathering, rates had been hiked at 17 straight meetings starting in June 2004.