WASHINGTON, Aug 12 (Reuters) - U.S. consumer prices increased slightly in July, potentially weakening the argument for an interest rate increase from the Federal Reserve next month.

The Consumer Price Index edged up 0.1% last month after dropping 0.4% in June, which was the first decline in six years, the Labor Department's Bureau of Labor Statistics said on Wednesday.

In the 12 months through July, the CPI advanced 3.4% after rising 3.5% in June. Excluding the volatile food and energy components, the CPI gained 0.2% last month after being unchanged in June. The so-called core CPI increased 2.5% in the 12 months through July after climbing 2.6% in June. 

Economists polled by Reuters had forecast the CPI rebounding 0.1% and core inflation rising 0.2% over the month.

The U.S. central bank tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. 

The CPI report followed news last week of surprise job losses last month. Prior to the CPI report, financial markets saw a roughly 46% chance of a rate hike at the Fed's September 15-16 policy meeting, CME's FedWatch tool showed. 

Policymakers will still get August's CPI and employment reports before that meeting. Economists expect the pace of consumer price increases to pick up in August, reflecting the recent increase in oil prices. Job growth is also expected to rebound as seasonal distortions fade.

The Fed last month left its benchmark overnight interest rate in the 3.50%-3.75% range. 

The United States' position as a net oil exporter and the drawing down of petroleum inventories had cushioned the hit on the economy from the oil price shock sparked by the Middle East conflict, but some economists said that could not persist indefinitely. They also added that the U.S. and other nations would at some point need to replenish petroleum inventories, which would keep oil prices elevated.

President Donald Trump accused Iran of being "devious negotiators" in an interview released late on Monday and described some of his ​current options in the war - "just bop along" and let Tehran fail ‌economically or hit them "really, really hard."

While July's cooler inflation readings could further temper rate hike expectations, they would likely be of little comfort to consumers, with wages not keeping up with prices.

The high cost of living has soured many Americans' views of Trump, and could weigh on the Republican party's chances in the November midterm elections that will determine control of the U.S. Congress for ​the next two years. Trump won the 2024 presidential election in large part because of his promise to lower inflation.