WASHINGTON, July 17 (Reuters) - U.S. consumer prices were flat in June as the cost of gasoline dropped, offering some relief for cash-strapped Americans and scope for the Federal Reserve to ease monetary policy further to help the faltering recovery.
The Consumer Price Index fell 0.3 percent in May and June's reading was in line with economists expectations.
Stripping out food and energy, inflation pressures were also benign. Core CPI rose 0.2 percent for a fourth straight month, the Labor Department said on Tuesday.
The data was the latest sign of tepid domestic demand and provided the Fed with some room to maneuver as it weighs options to aid the economic recovery, which has slowed significantly in recent months.
Minutes of the U.S. central bank's June meeting released last week showed the Fed was open to buying more Treasury bonds to spur the economy, but the recovery would probably need to weaken further for broad consensus among policymakers.
The economy grew at a 1.9 percent annual rate in the first quarter and estimates for the April-June period are converging around a 1.5 percent pace.
Fed Chairman Ben Bernanke could shed more light on the outlook for monetary policy when he gives his semi-annual testimony before lawmakers at 10 a.m.
Last month, overall inflation was held back by a 2.0 percent drop in gasoline prices, offsetting a 0.2 percent rise in food prices. Gasoline prices at the pump have declined about 53 cents from their peak around $4 a gallon in April, easing some of the strain on household budgets amid stagnant wages.
Overall consumer prices rose 1.7 percent year-on-year in June after increasing by the same margin in May.
Core consumer prices were last month lifted by apparel prices, which rose 0.5 percent, advancing for a fourth consecutive month. New motor vehicle prices gained 0.2 percent after increasing by the same margin in May.
Prices for used cars and trucks were flat after three straight months of strong gains.
The cost of medical care rose at its fastest pace since September 2010, reflecting big increases for hospital and doctors' services. There were also gains in the cost of tobacco and recreation.
However, the price of airline tickets fell 2.5 percent. Housing costs were muted, with owners' equivalent rent advancing 0.1 percent in June after gaining by the same margin in May.
In the 12 months to June, core CPI increased 2.2 percent after rising 2.3 percent in May.
This measure has rebounded from a record low of 0.6 percent in October and the Fed, which last month expanded its efforts to stimulate the economy, aims for inflation of 2 percent.