Slightly higher inflation could make it easier for the Fed to start pulling back on its low-interest-rate policies. Falling inflation would pressure the Fed to continue stimulating growth.
The Fed announced after its July meeting that it planned to continue buying $85 billion a month in bonds to keep downward pressure on long-term interest rates. It also said it planned to maintain a key short-term rate near zero, where it's remained since December 2008 at least as long as unemployment stays above 6.5 percent.
But Chairman Ben Bernanke and several other Fed officials have said the central bank could start slowing its bond purchases later this year. Some economists think such a change could be announced at the Fed's next meeting on Sept. 17-18.
Most analysts expect the slowdown to be gradual. New bond purchases might not end until mid-2014 and only then if the unemployment rate has dropped to around 7 percent.
More expensive fruits and vegetables pushed up the price of food in July, which ticked up just 0.1 percent. Meat, chicken and fish also rose in price, while other food groups fell. Baked goods and cereals, milk and other dairy products, and fruit juices and other drinks all fell in price.
Core prices were pushed up by a big jump in clothing costs, which rose 0.6 percent, the third straight gain. Rents and new car prices also rose. Airline fares, meanwhile, fell 1.3 percent last month.
Economic growth is too slow and unemployment too high to spur much inflation. Hourly wages and incomes have barely grown since the recession ended four years ago. That makes it hard for retailers to raise prices.
Unemployment dropped in July to 7.4 percent from 7.6 percent in June. The July figure was a 4½-year low, but it was still well above the 5 percent to 6 percent range that economists associate with a healthy economy.
The economy grew at a scant annual rate of 0.1 percent in the October-December quarter and then at lackluster annual rates of 1.1 percent in the first three months of this year and 1.7 percent in the April-June quarter.
But many economists think growth will accelerate to a 2.5 percent annual rate in the second half of this year as the effects of tax increases and government spending cuts begin to fade.
Wasatch Front prices rise, too
Zions Bank's Wasatch Front Consumer Price Index increased 0.2 percent in July, as rising housing prices more than offset a fall in transportation costs.
Housing costs, which represent 35 percent of consumer spending, increased 0.5 percent. The increase was driven by a 3 percent increase in hotel room rates probably due to several large conferences in Salt Lake City.
Transportation costs fell 1 percent as gasoline prices fell. The decline was the first since early this year. Utah consumers saw gas prices rise nearly 30 percent between January and June. In July they fell 2 percent.
In other categories, groceries increased 0.9 percent and utility costs jumped 1.7 percent. Prices for recreation and clothing increased 0.6 percent and 0.2 percent, respectively.
Prices for restaurant meals, education and communication, and medical care all decreased slightly, Zions said.