Consumer prices rose 0.1 percent in July, the smallest seasonally adjusted rise in five months, the U.S. Labor Department said Tuesday.
Rising food, shelter and health care costs were largely offset by falling gas and energy prices, which slid 0.3 percent compared with the year-ago period. It was the first time prices at the pump had declined since March. A gallon of gas around the U.S. now costs an average of $3.45, down from more than $3.50 a year ago. according to AAA.
Airfares also decreased and were down 5.9 percent from a year ago, while used vehicle, furnishings and tobacco prices also eased.
"Inflation is not accelerating," said PNC Financial Group economists in a client note. "Core prices have been increasing at a steady 0.1 to 0.2 percent monthly pace for years. Wage pressures remain soft, profit margins are solid and businesses are reluctant to raise prices given still-recovering demand."
Food prices, which have surged in recent months amid an ongoing drought in certain parts of the U.S., rose 0.4 percent last month, while rent increased 0.3 percent. Lower- and middle-income families are especially vulnerable to rising food and rent costs.
The federal Consumer Price Index, a closely watched gauge of inflation, has risen 2 percent over the last year. Excluding volatile food and energy costs, the price of U.S. goods and services are up 1.9 percent over the last 12 months.
The 1.9 percent annualized rate of inflation is in line with the Federal Reserve's 2 percent target. That takes pressure off the central bank to start considering raising short-term interest rates, said Paul Dales, senior U.S. economist with Capital Economics, in a research note.