US producer prices unexpectedly rose in June despite big drops in energy prices, a sign that some inflation pressures could keep the Federal Reserve on guard.

The Labor Department said today its seasonally adjusted producer price index rose 0.1 per cent last month. Analysts polled by Reuters expected the index to drop 0.5 per cent.

The increase was driven by gains in consumer goods like household appliances, light trucks and pet food.

That led so-called core inflation, which strips out more volatile food and energy prices, to rise 0.2 per cent, in line with expectations.

While overall inflation has cooled recently, core inflation has held at higher levels.

Some policymakers at the Fed worry that further moves to lower borrowing costs could fuel higher inflation, though the central bank has said it was ready to do more to help the economy if needed.

Energy prices dropped 0.9 per cent in June, dragged down by a record drop in prices for residential electric power, which fell 2.1 per cent. Diesel fuel prices sank 8.8 per cent.

The fall in energy prices is likely to help the economy as lower costs for fuels and other input prices leave companies more money to spend on other things, such as equipment or even hiring.

Reuters