Washington. Year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September.

Wednesday's report from the Labor Department showed that consumer prices rose just 0.2 percent from June to July after dropping slightly the previous month. Measured from a year earlier, prices rose 2.9 percent, down from 3 percent in June. It was the mildest gain since March 2021.

The ongoing inflation slowdown could affect the presidential campaign, given that former President Donald Trump has highlighted rampant inflation as a key failing of the Biden administration and its energy policies. Vice President Kamala Harris has said she would soon unveil new proposals to “bring down costs and also strengthen the economy overall.”

The government said nearly all of July's inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing. As a result, housing costs should rise more slowly in the coming months, contributing to lower inflation.

The report showed that inflation is steadily falling closer to the Fed’s 2 percent target -- though not too quickly, which might suggest that the economy is weakening, said Tara Sinclair, an economist at George Washington University and a former Treasury Department official.

“It’s a comforting report, both because it is going in the right direction and because it is not doing anything too dramatic,” Sinclair said. “It is exactly what we wanted to see.”

In July, grocery prices rose just 0.1 percent and are a scant 1.1 percent higher than they were a year earlier, a much slower pace of growth than in previous years. Yet many Americans are still struggling with food prices, which remain 21 percent above where they were three years ago.

Gas prices were unchanged from June to July and have actually fallen 2.2 percent in the past year. Clothing prices also dropped last month; they're nearly unchanged from 12 months earlier. New and used car prices fell in July, too. Used car prices, which had skyrocketed during the pandemic, have tumbled nearly 11 percent in the past year.

Some food prices, including for meat, fish and eggs, are still increasing faster than before the pandemic. Dairy and fruit and vegetable prices, though, fell in July.

Even as inflation -- the rate of price increases -- keeps slowing, many people are still struggling with daily costs that, on average, are still about 20 percent higher than they were three years ago. That's true even though average US wages have surpassed inflation for more than a year.

Ariel Borchuk, who lives in the Harlem area of New York City, complained that the government's inflation reports don’t mean anything to “regular people” like himself.

“Everything," he said, “is expensive. What more do you need to know?”

Borchuk, 48, who works in the catering business, had just grabbed a hot fried chicken sandwich for $7.99 at a grocery store on Manhattan’s Upper East Side. It’s something he says he really can’t afford.

Borchuk said he’s been cooking more at home and eating out less and buying more of his groceries at Costco, where he said he can get good deals.

Austan Goolsbee, president of the Federal Reserve's Chicago branch, said Wednesday in an interview with The Associated Press that the July data shows that inflation is clearly on track to return to the central bank's 2 percent target. He also noted that there are signs that the job market is weakening even while the Fed’s key rate remains at its highest level in decades.

Goolsbee's remarks suggested that he would support a series of rate cuts in the coming months.

At a White House event Wednesday, President Joe Biden was asked whether the nation had defeated inflation.

“Yes, yes, yes,” he said. “I’ve told you we’re going to have a soft landing," he added, referring to an economy in which inflation is tamed without a steep recession.

For nearly a year, cooling inflation has provided gradual relief to America’s consumers, who were stung by the price surges that erupted three years ago. Inflation peaked two years ago at 9.1 percent, the highest level in four decades.

Fed Chair Jerome Powell has said he is seeking additional evidence of slowing inflation before the Fed begins cutting its key interest rate. Economists widely expect the Fed’s first rate cut to occur in mid-September, and will be followed by additional cuts in November and December. Investors are betting that at least one of those cuts will be a half-point, according to future prices.