US producer prices unexpectedly fell in July amid a drop in the cost for energy products, and underlying producer inflation appears to be on a downward trend.

The producer price index for final demand declined 0.5% last month after climbing 1.0% in June, the Labor Department said on Thursday. In the 12 months through July, the PPI increased 9.8% after advancing 11.3% in June.

There was a drop of 1.8% in goods prices. They gained 2.3% in June.

The cost of services rose 0.1% after climbing 0.3% in June.

Economists polled by Reuters had forecast the PPI would rise 0.2% in July and increase 10.4% on a year-on-year basis.

The government on Wednesday reported consumer prices were unchanged in July, helped by a drop in gasoline prices after a surge earlier this year.

Excluding the volatile food, energy and trade services components, producer prices rose 0.2% in July. The so-called core PPI increased 0.3% in June. In the 12 months through July, the core PPI advanced 5.8% after rising 6.4% in June.

The Federal Reserve is mulling whether to raise its benchmark overnight lending rate likely by another 50 or 75 basis points at its next policy meeting on Sept. 20-21, as it battles to cool demand and bring inflation back down to its 2% goal.

The US central bank has raised its policy rate by 225 basis points since March.