Inflation was rising a year ago amid an increase in food and energy prices, but the collapse of several high-profile banks and the worldwide economic recession has stifled demand, leading to lower prices.

Industrial output rises

Core CPI, which excludes food and energy prices, rose 0.1 per cent in July, slowing from a 0.2 per cent rise in June, the department said.

Core CPI was up 1.5 per cent from July 2008, compared with a 1.7 per cent annualised rise in June, the data showed.

The labour department made no revision to a 0.7 per cent leap in the CPI for June, which had been the sharpest increase since July 2008.

That rise, which was due to an increase in fuel prices, had come after three months of virtually flat inflation.

July also saw the first increase in US industrial output for the first time in nine months, a report by the Federal Reserve, the US central bank, said on Friday.

Industrial output increased by 0.5 per cent over the previous month, the report said, against market expectations for only a 0.3 per cent rise.

Apart from a rise in industrial output in October 2008 – which came after a severe hurricane – July's increase marked the first monthly gain in output since December 2007, when the current recession started.