Prices that consumers pay for a variety of goods and services rose 8.5%  in July from a year ago, a slowing pace from the previous month due  largely to a drop in gasoline prices.

On a monthly basis, prices were flat as energy prices broadly  declined 4.6% and gasoline fell 7.7%. That offset a 1.1% monthly gain in  food prices and a 0.5% increase in shelter costs.

Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.

Excluding volatile food and energy prices,  so-called core CPI rose 5.9% annually and 0.3% monthly, compared with  respective estimates of 6.1% and 0.5%.

Even with the lower-than-expected numbers, inflation pressures remained strong.

The jump in the food index put the 12-month increase to 10.9%, the  fastest pace since May 1979. Butter is up 26.4% over the past year, eggs  have surged 38% and coffee is up more than 20%.

Despite the monthly drop in the energy index, electricity prices rose  1.6% and were up 15.2% from a year ago. The energy index rose 32.9%  from a year ago.

Used vehicle prices posted a 0.4% monthly decline, while apparel  prices also fell, easing 0.1%, and transportation services were off 0.5%  as airline fares fell 1.8% for the month and 7.8% from a year ago.

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