"Intraday overbought conditions returned with yesterday's rally, supporting a resumption of the pullback today. We are impressed by the ability of the SPX to hold up near 2100-2135 support, but would not rule out a brief dip below this level. Short-term momentum remains weak, and oversold conditions appear likely to expand before a tradable low is established," said Katie Stockton, chief technical strategist at BTIG.
David Schiegoleit, managing director at the Private Client Reserve at U.S. Bank said declining oil prices were also contributing to losses in equities. "The handcuff between oil prices and stocks started to break off in the second quarter," he said, noting that oil and stocks would trade in tandem again if the fall in oil prices "is seen as a reflection of the global economy, ... or as something that could take out the energy sector."
The Nasdaq held about 0.1 percent lower, as Apple slipped about half a percent. Still, the tech giant's stock advanced 11.43 percent for the week.
"I think the real problem here is the CPI number," said Peter Cardillo, chief market economist at First Standard Financial. "Now, I don't think the Fed will go next week, but this is a number they can't ignore for much longer."
"I think the Fed is going to be very vocal in that inflation is creeping up," he said.
Bank stocks were also in focus on Friday as Deutsche Bank's U.S.-listed shares fell 9.42 percent after the U.S. Justice Department suggested the German banking giant pay $14 billion to settle a number of investigations related to mortgage securities. The SPDR S&P Bank ETF (KBE) fell 0.87 percent.
The three major indexes posted weekly gains despite the amount of volatility investors have encountered. The Dow had recorded three tripe-digit moves on a closing basis this week as of Thursday's close, but still managed to gain 0.21 percent for the week. The S&P and the Nasdaq notched weekly gains of 0.53 percent and 2.31 percent, respectively.
Dow Jones 1-month chartSource: FactSet
U.S. consumer prices increased more than expected in August as rising rents and health care costs offset a drop in gasoline prices, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year.
The Labor Department said on Friday its Consumer Price Index rose 0.2 percent last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1 percent after advancing 0.8 percent in July.
"Janet Yellen certainly applauded the figures, for the lack of any upward pricing pressures has persisted for far too long. Nevertheless, the Chairman and her colleagues will almost assuredly refrain from adding restrictive measures next week given a recent string of poor data," said Jeremy Klein, chief market strategist at FBN Securities.
Market expectations for a rate hike next week rose slightly after the data release, but remained relatively low. According to the CME Group's FedWatch tool, market expectations for a September rate hike rose to 15 percent from 12 percent. Investors have been watching closely the recent data, looking for clues as to whether the Fed will raise rates at its two-day meeting, which starts Tuesday and ends Wednesday.
Other data released Friday included the September consumer sentiment read, which came in below the expected 90.8.
U.S. Treasurys, meanwhile, traded lower following the inflation data release, with the two-year note yield at 0.77 percent and the benchmark 10-year note around 1.69 percent. The U.S. dollar extended gains against a basket of currencies, with the euro near $1.116 and the yen around 102.33.
In oil markets, U.S. crude settled 2 percent lower at $43.03 per barrel as oversupply concerns weighed on the commodity. Baker Hughes reported U.S. drillers increased the number of rigs operating in U.S. fields by 2 in the previous week to a total of 416. At this time last year, drillers had 644 rigs in U.S. fields. The rig count has risen in 11 of the last 12 weeks.
The Dow Jones industrial average fell 88.68 points, or 0.49 percent, to end at 18,123, with United Technologies leading decliners and Intel the top advancer.
The S&P 500 dropped 8.1 points, or 0.38 percent, to close at 2,139.16, with financials leading eigth sectors lower and utilities and health care the only risers.
The Nasdaq slipped 5.12 points, or 0.1 percent, to 5,244.57.
About nine stocks declined for every five advancers on the New York Stock Exchange, with an exchange volume of 2.136 billion and a composite volume of 4.841 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.4.
High-frequency trading accounted for 49 percent of September's daily trading volume of about 7.09 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.
—Reuters contributed to this report.