U.S. consumer prices rose in July for the first time in three months but the increase was less than expected as inflation remains soft.

The Labor Department reported that the consumer price index, or cost of living, increased 0.1% last month, while the rate of inflation over the past 12 months rose to 1.7% from 1.6% in the prior month.

Economists had forecast a 0.2% increase in the CPI. In February, the year-on-year inflation rate hit the five-year high of 2.7% but has been softening ever since.

“The [July] data showed inflation remains soft, a trend that has concerned Federal Reserve officials because it indicates that the economy still is not operating at maximum efficiency,” the Los Angeles Times said.

Fed policymakers want prices to increase 2% a year, a level that indicates rising wages but that does not cause the economy to overheat. The Fed’s “core CPI” preferred inflation measure, which strips out food and energy costs, increased 1.7% for the 12 months through July 31, the same annual pace recorded the previous two months.

“The CPI data was very muted and not something which the Fed is going to be happy to look it,” said Naeem Aslam, chief market analyst at Think Markets UK Ltd.

The CPI reading for July reflected in part a 0.2% gain in food prices after being flat in July, offsetting a 0.1% decline in energy prices. But the core rate was held down by new vehicle prices, which fell 0.5%, the biggest decline since August 2009.

The cost of cell phones continued to drop, falling 0.3%, while the index for lodging away from home fell a sharp 4.2%, the biggest decline since the series began in December 1997.

According to the Times, a tightening labor market “should be helping to increase inflation, but that has yet to happen consistently in the recovery from the Great Recession.” Without a significant reversal in the inflation trend, “the data could lead Fed officials to hold off on future increases in a key short-term interest rate,” the Times added.

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