The Dow shed about half a percent, the S&P 500 lost seven-tenths of a percent and the Nasdaq dropped nearly 1.2%.

The Consumer Price Index report for July, due on Thursday, is expected to show a slight acceleration in the annual inflation rate. On a month-to-month basis, consumer prices are seen increasing 0.2%, the same as in June.

But it's the core CPI - which strips out volatile food and energy prices - that investors will be focused on, says Eric Lynch, Managing Director at Scharf Investments.

"What we're looking at, really, are the wage pressures that have been kind of really continuing to nag at the economy, at margins rather, this year. You know, UPS released [earnings] yesterday and brought down guidance a lot, margin guidance, by about 100 bps, largely because of the new Teamsters contract deal that they inked. And so this wage pressure looks like it's continuing and that's what investors will be keying on. It's likely that the core CPI will remain elevated - 4, 4-and-a-half percent range - maybe higher."

Among individual movers, shares of Disney - which dipped at the close - rose more than one percent in after-hours trading after the entertainment giant said it was on track to cut costs by more than $5.5 billion - a promise it made to investors back in February.

And speaking of Disney... the new online betting venture between its ESPN network and casino owner Penn Entertainment sent Penn's shares surging more than 9%.

And Lyft shares tumbled 10% despite a strong earnings forecast, as the company signaled it would double down on competitive pricing to catch up with rival Uber.