Prices paid to factories, farmers, and other producers fell a larger-than-expected 0.7% in January. It was the biggest drop in four and a half years, as inflation remained absent from the economy.

January's decline in the producer price index was led by the largest drop in energy prices since the Persian Gulf War in February 1991. Food prices also declined. Meanwhile, the core rate of the index, which excludes food and energy costs, fell 0.1%, the Labor Department said.

"It's an impressive set of minuses," said Robert G. Dederick, an economic consultant at Chicago's Northern Trust Co. "It's across the board."

Before today's report, analysts had expected a 0.2% decline in January's producer price index and no change in the core rate.

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