Wholesale prices plunged by a record 1.9 percent in April as the end of the Iraq war removed pressures on energy costs, which posted their largest drop in nearly 17 years.

The big drop in the Producer Price Index (search), which measures the prices of goods before they reach store shelves, marked an about-face from March when higher energy prices, stoked by the war, helped to catapult wholesales prices up by a hefty 1.5 percent, the Labor Department reported Thursday.

The drop in the PPI in April was more than double the 0.7 percent decline that economists predicted.

Gasoline and home-heating oil prices in April each fell by record amounts, good news for businesses and consumers, who have felt the strain of higher energy prices on their budgets and spent more cautiously in return.

Thursday's report makes clear that inflation isn't a problem for the economy, but it might intensify fears about whether the United States is heading down a path of a destabilizing fall in prices.

Already worried about sluggish growth, Federal Reserve (search) policy-makers last week raised a new concern — that the country could face deflation, a prolonged bout of falling prices. Though they indicated the chance of this was remote, it still represented a possible threat to the economy.

Fed policy-makers signaled they were prepared to cut rates, now at a 41-year low, to ward off even the threat of deflation.

Economists said those concerns raised the odds that the Fed might reduce rates at its next meeting on June 24-25.

Separately, fewer U.S. workers filed new claims for unemployment benefits for the third straight week, a small dose of good news for the largely stagnant job market. The department, in that report, said new applications for jobless benefits fell by a seasonally adjusted 13,000 to 417,000 last week. That surprised analysts who were predicting unemployment claims to rise.

Economists prefer to see the pace of layoffs go down — rather than up. But during the economy's fragile recovery period, claims still remained above the 400,000 mark, a level associated with a weak job market.

The number of workers continuing to collect unemployment benefits shot up by 120,000 to 3.77 million for the week ending May 3, the most recent period for which that information is available. That marked the highest level since Nov. 17, 2001, and suggested that not a lot of hiring is going on.

In the PPI report, the 1.9 percent drop registered in wholesale prices surpassed the previous record decline of 1.6 percent set in October 2001.

Much of the weakness in April's wholesale prices reflected lower energy costs. Energy prices dropped by 8.6 percent in April, the biggest decline since July 1986. That marked a turnaround from March, when energy prices, pushed higher on war tensions, rose by 5.7 percent.

In April, retreating energy costs were led by a record drop in gasoline prices, which plunged by 22.3 percent, and a record decline in home-heating oil, which plummeted by 29.3 percent. Costs for liquefied petroleum gas, such as propane, fell 25.9 percent. Residential natural gas (search) prices went down by 3.1 percent.

Food prices, however, rose by 0.9 percent in April, a big pickup from March's tiny 0.1 percent rise.

Excluding food and energy prices, which can swing widely from month to month, "core" wholesale prices fell by 0.9 percent in April. That compared with a 0.7 percent increase in core wholesale prices in March and marked the biggest drop in core prices since August 1993.

The drop in core wholesale prices in April reflected falling prices for cars, trucks, men's and boy's clothes and cigarettes.