(Reuters) - Consumer prices were flat in July for a second straight month and the year-over-year increase was the smallest since November 2010, giving the Federal Reserve room for further monetary easing to tackle stubbornly high unemployment.

Economists polled by Reuters had expected the Consumer Price Index to rise 0.2 percent last month. In the 12 months to July the CPI rose 1.4 percent, slowing from June's 1.7 percent rise, the Labor Department said on Wednesday.

Stripping out food and energy, inflation pressures were also tame. Core CPI rose 0.1 percent, the smallest increase since February, and breaking four consecutive months of 0.2 percent increases.

Economists had expected core CPI to increase 0.2 percent last month. In the 12 months to July, the index which is closely watched by the Fed, rose 2.1 percent - the smallest rise since October last year. That followed a 2.2 percent increase in June.

This measure has rebounded from a record low of 0.6 percent in October and the Fed aims for inflation of 2 percent.

Despite signs of a pick-up in job growth and domestic demand early in the third quarter, price pressures remain tame and the unemployment rate too high, leaving many economists to anticipate further policy easing by the end of the year.

"That says slower economy on inflation data," said Frank Lesh, an analyst at FuturePath Trading in Chicago.