Inflation at the wholesale level jumped 8.7 per cent in August from a year earlier, a slowdown from July yet still a painfully high level that suggests prices will keep spiking for months to come.

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Wednesday's report from the Labour Department also showed that on a month-to-month basis, the producer price index 'which measures inflation before it reaches consumers' declined 0.1 per cent from July to August, the second straight monthly decline.

Yet the better readings mostly reflect plunging gas prices and don't necessarily point to a broader slowdown in inflation. A measure that excludes the volatile food and energy categories 'so-called core prices' rose 0.4 per cent from July to August and 7.3 per cent in August compared with a year ago.

The cost of services 'which are increasingly driving consumer inflation' rose 0.4 per cent in August, driven by higher prices for public transportation, car rentals and some financial services.

Still, there were a few encouraging signs in Wednesday's report: Wholesale food costs were flat from July to August, after a 1.3 per cent spike the previous month. And wholesale goods prices overall fell 1.2 per cent, suggesting that goods prices for consumers could soon decline.

On Tuesday, the government reported that consumer inflation was rampant across much of the economy in August.

Apart from cheaper gas, consumer prices for everything from food and rents to furniture, medical care and new cars got pricier last month. The worse-than-expected consumer price spikes sent the stock market tumbling to its worst day in more than two years on fears that the Federal Reserve will turn even more aggressive in raising interest rates to fight inflation.

Wednesday's producer price data captures inflation at an earlier stage of production and can often signal where consumer prices are headed. It also feeds into the Fed's preferred measure of inflation, which is called the personal consum