CONSUMER prices in the United States rose in July by the most since August last year as energy costs increased for the first time in five months.

The increase is likely to ease concerns, raised in recent weeks by some Federal Reserve officials, that the weak economy could tip into deflation. Deflation is a widespread and prolonged drop in the price of goods, real estate and stocks. It also reduces wages and makes it harder to pay off debts.

The US Labor Department yesterday said the Consumer Price Index, the government's most closely watched inflation measure, increased by 0.3 percent in July, after three months of declines.

Over the past year, consumer prices rose by 1.2 percent, the department said. That's up slightly from last month's 1.1 percent pace but still a mild increase.

One small benefit of the weak economy is that it is keeping prices in check. Consumers are spending cautiously and saving more, which makes it harder for companies to raise prices.

A separate report yesterday showed that retail sales rose modestly in July, but mostly due to higher auto and gasoline purchases. Outside those categories, most other retailers saw their sales fall. The broad declines outside auto and gas sales are a sign of a slowing recovery.

Excluding volatile food and energy prices, the so-called "core" price index increased by 0.1 percent in July, as the cost of housing, clothes, and used cars and trucks all rose.

Core prices moved up by 0.9 percent in the past year for the fourth month in a row, the department said. That's below the Federal Reserve's inflation target and is the slowest pace in 44 years.

The low core inflation rate, along with the three months of declines in the Consumer Price Index, has fanned deflation fears. The US's last serious case of deflation was during the Great Depression.

Meanwhile, tame inflation allows the Federal Reserve to keep the key interest rate it controls at a record low of nearly zero percent in an effort to bolster economic growth. The Fed usually fights rising inflation by raising rates.

Higher energy costs accounted for about two-thirds of the increase in consumer prices. Energy prices rose by 2.6 percent in July, the first increase since January.