U.S. import prices recorded their biggest drop in seven months in March as the cost of petroleum declined, but the underlying trend pointed to a moderate rise in imported inflation as the dollar's rally fades.

The Labor Department said on Wednesday import prices fell 0.2 percent last month, the largest drop since August, after a 0.4 percent increase in February.

That lowered the year-on-year increase in import prices to 4.2 percent from 4.8 percent in February.

Economists polled by Reuters had forecast import prices slipping 0.2 percent last month. U.S. financial markets were little moved by the report.

The drop in import prices is unlikely to be sustained with oil prices pushing higher in recent days amid rising geopolitical tensions following last week's U.S. missile strike on Syria and reports that Saudi Arabia wants to extend production cuts enacted in January for another six months.

Despite weak imported price pressures, domestic inflation is rising. Most consumer inflation measures have pushed above the Federal Reserve's 2 percent target. A report on Thursday is expected to show producer prices unchanged in March, but rising 2.4 percent on a year-on-year basis, according to a Reuters survey of economists.