US consumer prices were unchanged in July from June, as a small drop in energy costs offset slightly higher food prices.

The consumer price index has not changed since March, evidence that the weak economy is keeping inflation in check.

The Labor Department says core consumer prices, which exclude volatile food and energy costs, ticked up 0.1% last month.

More expensive medical costs, clothing and rents pushed up core prices.

Prices increased 1.4% in the 12 months ending in July.

That is down from 1.7% in June and is the smallest yearly increase in 20 months.

Core prices have increased 2.1% in the past year, down from a 2.2% pace in June.

Mild inflation gives the Federal Reserve more room to take steps to boost growth.

Other reports showed home-builder sentiment in August hit its highest level in more than five years, while industrial production rose in July.

However, a gauge of manufacturing in New York state contracted this month.

The tame inflation reading leaves more stimulus from the US central bank on the table, even though data on job growth and retail sales have hinted at a pick-up in economic activity early in the third quarter. The unemployment rate is at an uncomfortably high 8.3%.

"While further monetary easing remains a viable option for the Fed, the timing may be delayed for more dire conditions," said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York.

Economists polled by Reuters had expected the Consumer Price Index to rise 0.2% last month.

In the 12 months to July the CPI rose 1.4%, the smallest rise since November 2010 and slowing from June's 1.7% rise, the Labor Department said today.

Stripping out food and energy, inflation pressures were also tame.

Core CPI rose 0.1%, the smallest increase since February, and breaking four consecutive months of 0.2% increases.

In the 12 months to July, the core index, which is closely watched by the Fed, rose 2.1% - the smallest rise since October 2011. That followed a 2.2% increase in June.

This measure has rebounded from a record low of 0.6% in October 2010 and the Fed aims for inflation of 2%.

A second report showed industrial production increased 0.6% in July after a 0.1% gain in June.

Output was boosted by solid gains in utilities production and mining. Manufacturing was also up last month.

However, a third report from the New York Federal Reserve showed factory activity in New York state contracted in August for the first time since October 2011.

"Given the weakness in many forward looking manufacturing indicators such as the new orders survey and the build up of inventories relative to sales, we expect further slowing," said Bricklin Dwyer, an economist at BNP Paribas in New York.

US stocks were little changed at open, while Treasury debt prices trended weaker. The dollar rose against a basket of currencies.

Officials at the Fed meet on September 12-13.

Fed Chairman Ben Bernanke's speech at the central bank's high-profile gathering in Jackson Hole, Wyoming, in late August could offer clues on the near-term course of monetary policy.

Mr Bernanke used that forum in 2010 to communicate the Fed's intention to pursue a second round of quantitative easing.

Last month, overall inflation was held down by a 0.3% drop in energy prices, which offset a 0.1% gain in food prices.

A drought ravaging much of the country could lift food prices in the coming months, but the impact on inflation will be modest as food accounts for about 14% of the CPI.

Core consumer prices were last month restrained by a 0.5% drop in the cost of used motor vehicles and trucks. New motor vehicle prices slipped 0.1% after rising 0.2% in June.

There were modest increases in apparel prices, which advanced for a fifth straight month.

Owners' equivalent rent advanced 0.2% in July after gaining 0.1% in June.