Inflation continued to moderate in July after easing in June, coming in precisely in line with economists’ expectations, newly published government figures indicate.

The consumer price index (CPI) rose 0.1% in July on a seasonally adjusted basis, with about two-thirds of the increase driven by a 0.1% increase in the shelter index, the U.S. Bureau of Labor Statistics (BLS) reported Wednesday.

Consumer prices were 3.4% higher than a year earlier, down from 3.5% growth in June and matching forecasts of economists surveyed by Dow Jones, Reuters and Bloomberg. The monthly increase also aligned with expectations.

The July reading also remained below May’s recent peak, when annual inflation shot up 4.2%.

“Two relatively soft inflation reports in a row should ease concerns that price pressures were starting to build again after firmer readings earlier this year,” explained Sam Williamson, senior economist at First American Financial Corp., in commentary shared with Scotsman Guide.

Energy prices that have surged amid the ongoing Iran war eased 1.5% in July as the gasoline index slid 2.9% over the month, though it was still 25% higher than a year ago. The food index was 3% higher than a year ago.

Core CPI, which strips out volatile food and energy prices, rose 0.2% monthly and 2.5% annually, level with prewar core measures of 2.5% in January and February.

“That gives the Federal Reserve more room to hold the federal funds rate steady at its September meeting, even as some parts of services inflation remain sticky,” Williamson added.

July’s inflation print was being closely watched for signals as to how Fed officials may approach their next policy meeting in mid-September, having held the federal funds rate within its current range of 3.5% to 3.75% last month.

Compounding inflationary pressures, including war-induced energy shocks, Trump administration tariffs, historic investments in artificial intelligence and widening federal spending deficits have raised pressure on the Fed to rein in prices. The Fed’s dual mandate is to maintain stable prices and full employment.

Job growth has remained tepid and concentrated within a handful of industries in 2026, but the unemployment rate ticked down to 4.1% in July from 4.2% in June and 4.3% over the prior three months, keeping the labor market within estimates of full employment.

Inflation, meanwhile, has captured the focus of policymakers.

Kevin Warsh, who became the top U.S. central banker in late May, has very vocally made tackling inflation a headline priority. But Warsh has not yet mustered a consensus at the bank to take aggressive action by raising rates.

Three officials on the Federal Open Market Committee that votes on adjustments to the federal funds rate registered formal dissents at the July meeting, instead preferring a quarter-point rate hike. Such a move would also have signaled that the Fed’s stated commitment to tackling inflation was grounded in a willingness to act.

Complicating matters, a single rate hike may be insufficient to bring down inflation, according to the president of the Federal Reserve Bank of Cleveland, Beth Hammack, an inflation hawk and one of the trio of officials who dissented in July.

“I would say, in general, one 25-basis-point move probably doesn’t do a whole lot for the economy,” said Hammack in a Monday interview with Yahoo Finance. Instead, she said “it’s probably some number” of adjustments that would be required to cool inflation.

Ultimately, however, the relatively tame July CPI print lowered investor odds in the hours after its release that the Fed will raise rates by a quarter-point in September. Officials will be receiving a series of additional inflation reports, as well as employment figures for August, before that meeting takes place.

As of late Wednesday morning, CME FedWatch, which tracks fed funds futures pricing, showed market-implied odds of roughly 60% that officials would keep rate cuts on hold next month, compared to a 50-50 chance a day earlier.