NEW YORK (CNNMoney.com) -- Consumer prices rose more slowly in July due to lower gasoline prices, according to the government's key inflation reading released Wednesday that was exactly what Wall Street was expecting..
Overall prices for goods rose 0.1 percent in the month, according to the Labor Department's Consumer Price Index, down from the 0.2 percent rise in the June reading. Economists surveyed by Briefing.com had forecast a 0.1 percent increase in prices.
The more closely-watched core CPI, which strips out often volatile food and energy prices, increased 0.2 percent in July, the same as the increase in June and the forecast of economists.
The CPI report is considered a key to whether the Federal Reserve might feel free to cut interest rates in the face of the tightening credit crunch in global markets. Last week the central bank injected $38 billion into the U.S. banking system to deal with the crisis, but concerns about the risk of inflation have so far stopped policymakers from moving to cut rates.
The core CPI is now up 2.2 percent over the last 12 months, which is an increase from the 2 percent rise that had been reported a month earlier. The Fed is widely viewed as being comfortable with the core CPI being up between 1 to 2 percent on an annual basis.
With the 12-month increase in the core CPI rising outside the comfort zone, there was debate among economists over whether inflation is tame enough to green light a Fed rate cut.
Rich Yamarone, the director of economic research at Argus Research who is generally more hawkish on inflation than many other economists, said he believes this report shows price pressures tame enough that the Fed doesn't need to worry about sparking inflation through a rate cut.
"I think this gives the Fed a lot of breathing room, should they have to ease policy because of liquidity issues, even though I don't think it's going to happen," he said. "The core might be outside the comfort zone, but it's not a troubling level that will force the Fed's hand in any direction."
But Jeoff Hall, the chief U.S. economist for Thomson Financial, said he believes the core CPI shows inflation needs to still be a concern for the Fed.
"From a pure economic perspective, inflation is not (low) enough to allow them to cut rates," said Hall. Still, he said that if the liquidity crisis becomes worse than it is, the Fed might have to put those inflation concerns on the back burner and cut rates to assure the markets.
"Those concerns are definitely at the forefront of their mind right now, not inflation," said Hall.
The overall CPI is up 2.4 percent over the last 12 months. That's less than the 4 percent rise in the average hourly wage during the same period, according to a separate Labor Department report, meaning that hourly workers' paychecks have more than kept pace with the rise in prices over the last year.
The overall prices were helped by a 1.7 percent decline in the price of gasoline compared to June. That led to overall energy prices posting a 1 percent decline. 
