Inflation drops below 3% for the first time since 2021
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The Consumer Price Index rose 2.9% in the 12 months through July, the smallest annual increase in more than 3 years.
Why it matters: Prices continued to rise at a mild pace again last month, the latest confirmation that the inflation shock is over. The new data paves the way for the Federal Reserve to lower interest rates, which could ease pressure on the economy.
By the numbers: Core CPI, the measure closely watched by policymakers that strips out volatile energy and food prices, rose 3.2% in the year through July compared to 3.3% in June.
- That is also the smallest 12-month increase since 2021.
- On a monthly basis, the overall index rose 0.2% after an outright drop in prices in June.
- Core CPI, meanwhile, rose by a similar amount—after rising 0.1% in June.
The big picture: The data shows that inflation continues to recede to the Fed's 2% target.
- Fed chairman Jerome Powell has suggested that the central bank will begin to turn its attention to the labor market now that price pressures are easing.
- Powell said last month that the Fed wanted further confirmation that inflation is cooling as it tries to keep the labor market healthy before cutting rates.
- "If that test is met, a reduction in our policy rate could be on the table, as soon as the next meeting in September," Powell told reporters at a press conference.
Go deeper: What the Fed's past rate cut pivots tell us about today
Editor's note: This story was updated with a new chart.
