U.S. consumer inflation moderated slightly in July, according to government data released Wednesday. The Consumer Price Index increased by 2.9% over the past year, the smallest rise since March 2021.

This is a positive sign for the Federal Reserve, which is considering lowering interest rates.

The monthly CPI went up by 0.2% in July after a 0.1% drop in June. This rise was as expected by economists.

Excluding food and energy costs, the core CPI also rose by 0.2% last month, with an annual increase of 3.2%. This is the lowest core inflation rate since April 2021, after a 3.3% rise in June.

The July numbers are favorable for the Fed as it considers reducing interest rates from a 23-year high. The Fed aims to lower inflation to a target of 2% without negatively affecting the economy or significantly increasing unemployment.

Fed Chair Jerome Powell indicated last month that a rate cut could happen "as soon as" September, depending on future data.

Annual inflation has dropped from a peak of 9.1% in June 2022 due to higher borrowing costs that have reduced demand.

The CPI increase was mainly due to a 0.4% rise in shelter costs. Energy prices were steady, and food prices increased by 0.2%.

The unemployment rate rose to 4.3% in July, the highest in nearly three years. Economists said the rise was mostly due to more people entering the job market rather than layoffs.

The Fed is expected to decide on interest rate cuts at its meeting on September 17 and 18. Predictions vary between a quarter and a half percentage point.

Economists suggest that a larger drop in jobless claims might be needed for a bigger rate cut.

The Fed has kept its key interest rate at 5.25% to 5.50% for a year after significant increases in 2022 and 2023.

Some information for this report was provided by Agence France-Presse and Reuters.