Consumer inflation edged up by 0.1 percent in August as lower prices for gasoline, tobacco and airline fares helped to blunt higher costs for medical care, the government reported Tuesday.

The small advance in the Labor Department's Consumer Price Index, a closely watched inflation gauge, came after consumer prices had plummeted by 0.3 percent in July, the biggest drop in 15 years.

Excluding energy and food prices, the "core" rate of inflation rose for the second straight month by 0.2 percent.

The latest readings on inflation at the consumer level were in line with analysts' expectations.

One of the reasons the Federal Reserve has been able to aggressively cut short-term interest rates this year is because inflation hasn't posed a risk to the economy.

In an effort to jump-start the economy in the wake of the terrorist attacks on the United States, the Federal Reserve on Monday cut short-term interest rates by a half percentage point to 3 percent, the lowest level in nine years. It was the Fed's eighth rate reduction this year.

But Wall Street investors weren't inspired. The Dow Jones industrial average plunged 684.81 points Monday, its biggest one-day point loss on record, after trading resumed for the first time since the Sept. 11 attack.

The attacks disrupted business around the country, closed the stock market for the longest period since the Depression and dealt a blow to the airline industry. Economists worry that the country could tip into recession if consumer spending, which has been keeping the economy afloat, declines.

But the Bush administration sought to restore confidence.

Treasury Secretary Paul O'Neill, the administration's chief economic spokesman, made the rounds of television news programs on Monday, insisting that the economy will quickly recover, bolstered by the Fed's rate cuts and the nearly $40 billion in tax rebate checks already in the pipeline.

During the first eight months of this year, consumer prices rose at a seasonally adjusted annual rate of 2.5 percent, compared with an increase of 3.4 percent for all of 2000.

In August, energy prices fell by 1.9 percent, after a big 5.6 percent drop in July. The costs of gasoline prices declined by 2.4 percent, natural gas by 3.4 percent, fuel oil by 1.2 percent and electricity by 0.4 percent, the largest drop in 15 months.

Food prices rose 0.2 percent, down slightly from 0.3 percent in July. Lower prices for fruits and beef helped temper higher prices for vegetables, dairy and poultry.

The core rate of inflation so far this year has increased at a rate of 2.9 percent, reflecting in part higher prices for medical care, shelter and tobacco products. For all of 2000, core inflation was up 2.6 percent.

But in August prices for tobacco and other smoking products plunged 3.8 percent, the biggest drop since September 1993.

On the transportation front, airlines fares were down by 1.8 percent, the biggest decline since October 2000, and new car prices edged down by 0.2 percent.

However, the costs of medical care rose 0.5 percent in August. Prescription drug prices were up 0.4 percent; prices for doctors' services rose 0.7 percent; and the cost of hospital services increased 1 percent, the biggest jump since the beginning of the year.