The fall was expected, as most forecasters were expecting inflation to decline from last month. And while it moved in the right direction, it is still far higher than the Federal Reserve considers to be healthy.

On a month-to-month basis, the price index was flat.

Core PPI inflation, which strips out volatile food and energy prices, was 4.2% on an annual basis. Core inflation was 0.2% on a monthly basis.

The latest numbers come a day after the most closely watched inflation gauge, the consumer price index, posted a slight decline and made investors rethink whether the Federal Reserve will end up raising interest rates at its next meeting in September.

CPI inflation fell one-tenth of a percentage point in July to 3.4%, and last month alone it only rose 0.1%. Still, those numbers are above the Fed’s 2% target, which it hasn’t been able to hit in years.

The bump in inflation since the start of 2026 has been driven in large part by higher energy prices, which have soared since the Iran war. Energy prices were a bit lower last month than right after the war began. But even before the energy price shock, inflation was still running above where it should be.

FED RATE HIKES LIKELY EVEN WITH WEAKENING JOBS OUTLOOK

Trump has seen his economic approval ratings take a major hit since he entered office, in large part due to voter discontent with affordability and cost-of-living concerns. The higher inflation threatens to hurt Republicans in this year’s midterm elections, further adding to the politics surrounding these inflation reports.

The Fed’s next meeting is set for mid-September.