WASHINGTON (Reuters) - U.S. wholesale prices fell in May as the end to the Iraq war caused energy prices to tumble, the government said on Friday, but the drop was mild enough to soothe worries about economy-wide price declines.
The Labor Department's Producer Price Index, which measures prices paid to farms, factories and refineries, fell 0.3 percent in May. Excluding food and energy, the "core" PPI rose 0.1 percent.

The overall PPI drop was just a bit steeper than the 0.2 percent decline projected by private economists and the "core" measure matched forecasts.

The report may help ease some nervousness about deflation, or broad price declines. The Federal Reserve has been keeping a close eye on the risk of deflation, although officials have said the threat of it occurring is remote.

When the April PPI report was released a month ago, the index plummeted a record 1.9 percent, pushed lower by energy costs. But the latest drop was nowhere near as severe.

Energy prices fell 2.6 percent in May, while food prices rose 0.1 percent. Gasoline costs sank 11.1 percent.

The cost of passenger cars edged up 0.2 percent and capital equipment costs gained 0.1 percent.