U.S. consumer prices were unchanged in July as the cost of gasoline fell for the first time in five months and underlying inflation moderated, which could further diminish prospects of a Federal Reserve interest rate increase this year.
The Labor Department said on Tuesday that the flat reading in its Consumer Price Index was the weakest since February and followed two straight monthly increases of 0.2 percent. In the 12 months through July, the CPI rose 0.8 percent after increasing 1.0 percent in June.
Economists had forecast the CPI would be unchanged last month and rise 0.9 percent from a year ago.
The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent in July. It had risen by 0.2 percent in the previous three consecutive months. The year-on-year core CPI increased 2.2 percent after rising 2.3 percent in June.
The Fed has a 2 percent inflation target and tracks an inflation measure which has been stuck at 1.6 percent since March. Coming in the wake of last week's weak retail sales report for July, the tame inflation reading could see financial markets dialing back their rate hike expectations for 2016.
Late on Monday, financial markets were placing a 46.7 percent probability of a rate increase at the Fed's December policy meeting, according to CME Group's FedWatch program. A September rate hike has been virtually priced out.