Plunging energy prices pulled the government’s producer price index down 0.5% from February to March; it had been unchanged from January to February. Compared with a year ago, wholesale prices were up 2.7% in March — the mildest 12-month increase since January 2021 and down significantly from a 4.7% annual rise in February.

The Labor Department’s producer price index reflects prices charged by manufacturers, farmers and wholesalers. It can provide an early sign of how fast consumer inflation will rise.

A huge drop in wholesale gasoline accounted for much of the sharp slowdown in producer prices. But even excluding volatile food and energy prices, so-called core wholesale inflation fell 0.1% in March, the first such drop in nearly three years. The Fed and many private economists regard core prices as a better gauge of underlying inflation. Core wholesale inflation was up just 3.4% from March 2022, the lowest year-over-year rise since 2021.

Behind last month’s drop in core prices was a sharp decline in wholesale costs for warehousing and transportation. Overall services prices fell 0.3%, the first such drop since November 2020.

Household appliance prices fell 1.4%, car prices 0.3%. But wholesale food prices rose 0.6%, including a 34% jump in egg prices.

Wholesale inflation has come down steadily — from a record 11.7% year-over-year increase in March 2022 — since the Fed began raising its benchmark interest rate to fight the worst inflation bout in four decades. Beginning in March of last year, the Fed has raised its key short-term rate nine times and is expected to do so again at its next meeting, May 2-3.

“We expect the bite from the Fed’s previous rate hikes will further reduce business and consumer demand, pushing producer price inflation lower throughout the rest of the year,” economists Matthew Martin and Ryan Sweet of Oxford Economics wrote in a research note.

Thursday’s figures follow a report Wednesday that showed that U.S. consumer inflation eased in March, with less expensive gas and food providing some relief to Americans. Still, consumer prices continue to rise fast enough to keep the Fed on track to further raise rates.

Core consumer inflation, in particular, remains stubbornly high. Measured year over year, core prices are up 5.6%, far above the Fed’s 2% inflation target. The year-over-year core consumer inflation figure rose in March for the first time in six months.

The collapse last month of two major U.S. banks, which shook the financial industry, has complicated the Fed’s interest rate decisions. Minutes of the Fed’s March meeting, which followed the bank failures, show that the turmoil led the central bank to coalesce around a decision to raise its benchmark rate by just a quarter-point, rather than a half-point.

According to the minutes, Fed officials agreed that the banking industry’s troubles “would likely lead to some weakening of credit conditions,” as banks sought to preserve capital by curtailing lending to consumers and businesses.

Fed officials who spoke this week have emphasized the importance of monitoring bank lending. There are already reports of small companies struggling to obtain loans, though it’s not yet clear how widespread the impact will be.

On Wednesday, the Fed also revealed that its staff economists have forecast that a pullback in bank lending will cause a “mild recession” starting later this year. That was a shift from their previous estimates, which had predicted that the economy would eke out positive growth for 2023.

At the same time, according to the minutes of last month’s Fed meeting, if the impact of the banking turmoil ends up being less than expected, a recession might be avoided.