U.S. retail sales dipped in October as auto demand dropped while wholesale prices spiked on soaring food and vehicle prices, the government said on Friday.

In a report showing a second straight month of declining consumer activity after surges in July and August, the Commerce Department (search) said retail sales fell 0.3 percent last month.

The slide, which was slightly larger than the 0.2 percent drop expected by Wall Street, came as auto sales fell 1.9 percent. Excluding the weak autos, sales actually rose 0.2 percent, matching analysts' forecasts.

A separate report showed wholesale prices unexpectedly posted their biggest gain in seven months in October, with food prices climbing at the fastest rate since January 1984 and car prices spiking with the introduction of new models.

But stripping out those outsized gains, prices for wholesale goods were mostly well contained.

The Producer Price Index (search), which measures prices paid to farms, factories and refineries, shot up 0.8 percent last month, the Labor Department (search) said.

A 2.2 percent increase in food prices, the largest since January 1984, accounted for much of the gain. Energy prices slipped 0.1 percent.

The so-called core rate, which strips out volatile food and energy prices, increased a sharp 0.5 percent. But the introduction of new vehicle models, and associated price increases, played a major role in pushing the index higher.

The department said the core PPI was up just 0.2 percent excluding sharply higher vehicle prices. Car prices rose 1.6 percent and prices for small trucks and SUVs soared 3.4 percent, their biggest jump since October 1985.

The report was at odds with expectations on Wall Street, where economists had expected overall producer prices to rise just 0.2 percent with the core rate up 0.1 percent.

Treasury prices fell on the wholesale price report as investors began to worry inflation pressures may be beginning to start to bubble. The dollar moved higher in currency markets.

"The pricing power of companies has picked up. It's consistent with an economic recovery. It's a positive for company profits," said George Mokrzan, chief economist at Huntington Private Financial Group in Columbus, Ohio.

Prices for beef and veal climbed 18.3 percent, the biggest gain since January 1974. The department said that if that price gain were excluded, the overall PPI would have been up just 0.5 percent.

Analysts were likely to eye the report closely for any clues to what it portends for inflation at the consumer level.

The department releases the October consumer price index next week. Analysts had been expecting the CPI and the index excluding food and energy to both rise to rise 0.1 percent.

Retail spending has lost some momentum since a tax-cut induced shopping spree in July and August, but overall retail sales in October came in 6.1 percent above year-ago levels.

Sales at gasoline stations slipped 1.6 percent while weaker spending also hit sporting goods and hobby stores, department stores and the food and beverage sector.