US Consumer Prices increased 0.2% in July, matching June’s gain, as lower costs for goods including used vehicles maintained an Inflation cool-down that should make the Federal Reserve leave interest rates unchanged next month.

The annual inflation rate ticked up to 3.2% from 3.0% in June, the Labour Department reported Thursday. But that reflected calculations against last July’s prices after inflation had surged to 40-year highs.

Compared to the 9.1% peak in June 2022, annual consumer prices continued moderating toward the Fed’s 2% target. The muted monthly and yearly CPI rises aligned with economist forecasts.

Core inflation, which strips out volatile food and energy costs, also rose 0.2% for the month and 4.7% over the last 12 months. The steady downward trend in underlying price pressures supports the case for the Fed to pause its aggressive rate hike campaign after another likely large increase in September.

“Overall, the trend in inflation is more firmly on a downward path than at the start of the year,” said Sam Bullard, a senior economist at Wells Fargo. “This would keep a sustained return to the Fed’s target in the distance.”

Further declines in used vehicle prices contributed to slowing goods inflation. Though rental costs have risen, the pace has eased since January per independent gauges that tend to lead CPI.

Moderating wage gains amid a cooling labor market should also help restrain price increases. Jobless claims increased slightly last week but remain near 50-year lows.

The CPI report follows remarks from Fed officials this week signalling comfort with downshifting from oversized rate hikes to smaller steps going forward as inflationary pressures abate.