U.S. consumer prices were flat in July for a second straight month and the year-over-year increase was the smallest in more than 1-1/2 years, giving the Federal Reserve room to ease policy further to tackle high unemployment.

Other reports on Wednesday showed home-builder sentiment in August hit its highest level in more than five years, while industrial production rose in July. However, a gauge of manufacturing in New York state contracted this month.

The tame inflation reading leaves the door open to more monetary stimulus from the U.S. central bank, even though data on job growth and retail sales have hinted at a bit of a pick-up in economic activity early in the third quarter.

Economists say growth is still too weak to do much to lower the nation’s uncomfortably high 8.3 percent unemployment rate.

“The bigger worry is high unemployment,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester Pennsylvania. “Additional monetary easing is likely, but they are probably going to wait until later this year, possibly after the election” in November.

The flat Consumer Price Index reading confounded economists’ expectations for a 0.2 percent gain.

In the 12 months to July, the CPI rose 1.4 percent, the smallest gain since November 2010 and down from June’s 1.7 percent increase, the Labor Department said.

The core CPI, which strips out food and energy, gained 0.1 percent from June. That was the smallest rise since February and it broke four straight months of 0.2 percent increases.

In the year to July, the core index, which is closely watched by the Fed, rose 2.1 percent – the smallest rise in nearly a year.

INDUSTRIAL PRODUCTION RISES

A second report showed industrial production increased 0.6 percent in July after a 0.1 percent gain in June, offering more hope the economy was improving after growth slowed in the second quarter.

The gain in industrial output, combined with surprisingly strong retail sales and a pick up in job growth in July, led some economists to argue the Fed’s policy-setting Federal Open Market Committee probably does not need to launch a third round of bond purchases this year.

“If the FOMC is waiting to see if recent weak data were anomalous, this month’s round of numbers seems to make the case that it might be, which in turn is enough to keep the Fed on the fence,” said Chris Low, chief economist at FTN Financial in New York.

Officials at the Fed meet on September 12-13. Fed Chairman Ben Bernanke’s speech at the central bank’s high-profile gathering in Jackson Hole, Wyoming, in late August could offer clues on the near-term course of monetary policy.

Bernanke used that forum in 2010 to communicate the Fed’s intention to pursue a second round of so-called quantitative easing.