Producer prices fell 0.6 percent in January

WASHINGTON (Reuters) - U.S. producer prices shrank a slightly bigger-than-forecast 0.6 percent in January, government data showed on Friday, as energy prices declined sharply while core producer prices inched up as expected.

The Labor Department said the fall in producer prices was the largest since a 1.8 percent drop in October 2006. The index gained 0.9 percent in December.

Analysts polled by Reuters had predicted producer prices would fall 0.5 percent while core, non-food, non-energy producer prices were forecast to rise 0.2 percent last month, which they did.

Volatile energy prices have been buffeting cost pressures facing producers for some time and in January, energy prices fell 4.6 percent versus a 2.2 percent rise in December and a 6.0 percent jump the month before.

The U.S. Federal Reserve is watchful for evidence that solid growth and tight labor markets may be fueling price pressures and the latest readings should reassure policy-makers.

Producer prices in January were 0.2 percent higher compared with the same month last year, while the 12-month core reading stood 1.8 percent higher.

Prices for passenger cars were down 0.1 percent last month while the price of light trucks retreated a solid 1.4 percent.