US producer prices dropped unexpectedly last month as the cost of gasoline plunged and food and vehicles prices fell, according to a government report that showed inflation pressures under wraps.
A separate report showed the nation's trade deficit narrowed more than expected in July, offering hope trade could give the expansion a small boost, as imports declined for the first time in 10 months and exports leapt higher.
Still, at $50.1 billion, the deficit was the second biggest on record.
US bond prices rose and the dollar slipped as the price report buttressed expectations that the Federal Reserve will take a break at some point this year from the rate-rise cycle it initiated in June. Stock prices, taking their cue from a drop in the price of oil, inched higher.
"We continue to live and benefit from a basically low inflation environment," US Treasury Secretary John Snow said. "I think that's going to continue."
The producer price index, a gauge of prices received by farms, factories and refineries, fell 0.1 per cent in August, the Labour Department said. The core index, which excludes volatile food and energy prices, also dropped 0.1 per cent - the first decline since February.
Economists had expected both figures to rise 0.1 per cent.
While US crude oil prices hit a record high near $50 a barrel last month, gasoline prices skidded five per cent as supplies remained ample and the summer driving season wound down.
The gasoline price drop partially offset rising costs for a number of other energy products and helped limit the increase in overall energy prices to a slim 0.2 per cent.
Food prices fell 0.2 per cent, the third straight monthly decline after a string of sharp gains in the spring. The cost of cars, light trucks and SUVs also tumbled as manufacturers raised sales incentives.
"There is nothing we see on the cards right now that raises any significant inflation risk," St Louis Fed President William Poole told reporters.
Nevertheless, Fed officials think borrowing costs are too low for an expansion that appears self-sustaining, and they are widely expected to raise overnight rates by a quarter-point to 1.75 percent when they meet on September 21.
"As the economy continues to expand, we can continue to withdraw our policy accommodation so that we do not unintentionally promote an inflationary environment down the road," Cleveland Fed President Sandra Pianalto said.
In its report on trade, the Commerce Department said the trade deficit narrowed nearly nine per cent, the biggest monthly drop in two-and-a-half years. Analysts had expected the deficit to shrink, but not so sharply.
Analysts have long expressed concern that the United States consumes more than it produces, and borrows abroad to cover the difference - a trend some fear could eventual lead to a financial crisis if not reversed.