U.S. producer prices rose more than expected in March on strong consumer food and gasoline costs, but a small gain in the core measure pointed to tame underlying inflation, a government report showed on Thursday.

The Labor Department said the seasonally adjusted index for prices paid at the farm and factory gate increased 0.7 percent following a 0.6 percent drop in February.

Analysts polled by Reuters had expected producer prices to rise 0.4 percent in March. Compared to March last year, producer prices increased 6.0 percent, the largest advance since September 2008. Producer prices rose 4.4 percent in February, year over year.

The year-on-year increase in March was a touch above market expectations for a 5.8 percent rise.

The department said 70 percent of the increase in wholesale prices in March was due to a 2.4 percent jump in consumer foods, the largest rise since January 1984. Gasoline prices increased 2.1 percent after a 7.4 percent fall in February.

Despite the rise in wholesale prices last month, inflation pressures generally remain muted, with sluggish demand constraining producers' ability to pass on the high costs to consumers.

Government data last week showed consumer prices barely increased in March. A combination of benign inflation pressures and excess resource slack in the economy support the Federal Reserve's commitment to low interest rates.

The U.S. central bank is due to hold a regular two-day meeting next week and will probably renew its pledge to hold lending rates low for an extended period.

Stripping out volatile food and energy costs, core producer prices rose 0.1 percent last month, after February's 0.1 percent gain. The core index had been forecast to rise 0.1 percent in March.

Core PPI was lifted by a 4.9 percent jump in jewelry costs, the biggest gain since September 1982, the department said. Compared to March last year, the core producer price index rose 0.9 percent, in line with market expectations and following a 1.0 percent rise in February.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Inflation