Food prices ticked up 0.1% in July, but consumers got relief from energy prices, which fell 0.3%.
The government's key measure of inflation, the Consumer Price Index, showed consumer prices were unchanged in July.
Economists had expected prices to edge up 0.2% over the month, driven partly by rising food prices.
Steady prices could be a welcome sign for the economy, if they lead to a pickup in consumer spending. Earlier this week, a separate report showed retail sales recently rose for the first time in four months.
But a low inflation rate can also be a sign of weak demand. Along with flat hourly wages in July, it shows consumers aren't necessarily any better off in July than they were a month earlier.
"Lower prices are good because they leave more money in consumers' pockets," said James Marple, senior economist with TD Economics. "On the other hand, it does represent a relatively weak economy."
Despite the Midwest drought, food prices only ticked up 0.1%. Higher prices on corn, wheat and soybeans are likely to drive inflation higher later this year, but only slightly, given food accounts for only 14% of the CPI's basket of goods.
Meanwhile, consumers got relief from lower prices on electricity and fuel oil in July. Overall, energy prices fell 0.3%.
Prices rose slightly on clothing, shelter and medical care. The price of traveling declined significantly though, as both airfares and prices at motels and hotels fell around 3%.
On an annual basis, the CPI was up 1.4%, a slowdown from June when it was up 1.7%.
Tame prices could give the Federal Reserve some leeway to stimulate the economy at its next meeting in September. The central bank aims to keep core inflation around 2% a year. That measure, which strips out food and energy prices, is currently up 2.1%.
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