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 Labor Department report on Tuesday was the latest sign of weakness in domestic demand, which has been marked by declines in retail sales over the past three months.

June's CPI reading was in line with economists' expectations and followed a 0.3 percent drop in May. Stripping out food and energy, inflation pressures were also benign. Core CPI rose 0.2 percent for a fourth straight month.

The data provides the Fed -- the U.S. central bank -- with some room to maneuver as it weighs options to aid the economic recovery, which has slowed significantly in recent months. Minutes of the Fed's June meeting released last week showed it 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 testifies 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.

With inflation subdued last month, workers saw more money in their pockets.

Average weekly earnings, adjusted for inflation, rose 0.5 percent last month after gaining 0.2 percent in May, the Labor Department said. Compared with June last year, weekly earnings were up 0.6 percent. 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 a measure of the amount homeowners would pay to rent or would earn from renting their property 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.