Prices for consumer goods in the United States fell last month on lower energy costs, the U.S. Labour Department reported Wednesday.

The consumer price index was off 0.1 per cent in August — the first decline in the rate of inflation since a 0.4 per cent drop in October 2006.

Economists had been expecting a flat reading last month.

Energy costs dropped by 3.2 per cent, the biggest slide since October. Gasoline prices were off by 4.9 per cent, while natural gas costs eased by 4.2 per cent.

Factoring out food and energy costs, inflation was up by 0.2 per cent. Over the past six months, the inflation rate has seen no increases bigger than 0.2 per cent.

On Tuesday, the U.S. Federal Reserve cut its key overnight interest rate by 0.5 of a percentage point in a bid to keep the economy growing. 

The U.S. central bank warned markets that is still saw some remaining inflation risks, but the bigger-than-expected rate cut signalled that the Fed is more worried about the threat of an economic downturn.

In conjunction with Tuesday's announcement, the Fed gave few hints of what direction it might lean toward in the future for interest rates.

"Despite lingering inflation risks and the notion that annual growth in the all-items index will likely re-accelerate through the latter part of this year, the Fed will likely continue to remain on hold as they assess the impact on financial markets of the recent interest rate move," said Royal Bank economist Rishi Sondhi in a commentary.