US core producer prices rose at their fastest pace in six months in July, pushed up by higher tobacco and light truck costs, according to a government report today that could stoke inflation fears.

The Labor Department said its seasonally adjusted index for prices paid at the farm and factory gate, excluding food and energy, rose 0.4 per cent - the largest increase since January - after rising 0.3 per cent in June.

That compared with economists' expectations for a 0.2 per cent rise.

Overall prices received by producers rose 0.2 per cent after falling 0.4 per cent in June, above economists' expectations for a 0.1 per cent gain.

The Federal Reserve last week promised to keep interest rates near zero for the next two years to stimulate growth, saying the outlook for inflation over the medium-term was subdued.

A spike in food and energy prices pushed up inflation early this year, but weak economic growth and high unemployment kept underlying price pressures contained.

In the 12 months to July, core producer prices increased 2.5 per cent, the largest increase since June 2009.

Tobacco accounted for almost a quarter of the rise in the monthly core PPI rate, with light motor trucks and pharmaceuticals also making significant contributions. Light truck prices increased 1 per cent, while tobacco surged 2.8 per cent, the largest increase since March 2009.

Overall producer prices were bumped up by food costs, which rose 0.6 per cent as potatoes recorded their biggest increase in almost a year. Gasoline prices, however, fell 2.8 per cent.

In the 12 months to July, producer prices rose 7.2 per cent after increasing 7.0 per cent the prior month. The rise was above economists' expectations for a 7.0 per cent advance.

Reuters