U.S. producer prices fell a larger-than-expected 0.7 percent last month, the biggest drop in 2-1/2 years, according to a government report on Tuesday that showed prices well contained outside of the volatile food and energy areas.

The drop in the producer price index, a gauge of prices received by farms, factories and refineries, was the largest since April 2003 and reflected a 4 percent drop in energy costs, which swamped a 0.5 percent gain in food prices, the Labor Department said.

The so-called core PPI, which strips out those volatile costs to provide a better gauge of underlying inflation pressures, edged up just 0.1 percent.

Wall Street economists had expected overall producer prices to drop 0.5 percent, with the core index up 0.2 percent.

Like a report on consumer prices issued last week that showed the biggest decrease in prices since July 1949, the producer price data could help ease inflation concerns.

Over the past 12 months, producer prices have risen a sharp 4.4 percent, but that increase marks a slowdown from the 5.9 percent gain registered in the period ended in October. In addition, core producer prices have risen just 1.7 percent over the last year.

The report showed an easing in inflation pressures stemming from energy costs, which had shot up in late summer as hurricanes ravaged the U.S. energy-producing Gulf Coast region.

The drop in energy prices in November was the biggest since April 2003. Home heating oil prices tumbled 15.5 percent, gasoline prices fell 10.7 percent, liquefied petroleum gas costs slid 12.2 percent and residential natural gas prices slipped 0.5 percent.

Prices for cars and light trucks also fell, although not as steeply as in October. The cost for both cars and light trucks slid 0.8 percent. In October, car prices had dropped 3 percent and light truck prices had declined 2.2 percent.

Falling energy prices also showed through further back in the production pipeline as the cost of intermediate goods and crude goods both fell 1.2 percent.

Outside of food and energy costs, intermediate goods prices rose 0.5 percent, less than half the gain registered in the prior two months. Core crude goods prices rose 5.4 percent.