US consumer inflation showed a slight decrease in July, according to government data released on Wednesday, marking the smallest 12-month increase since March 2021 and signaling a positive outlook for the Federal Reserve as it considers lowering interest rates. The consumer price index (CPI) increased by 2.9 percent from the previous year, according to a statement from the Labour Department. Meanwhile, the core CPI, which excludes volatile food and energy costs, slowed to an annual rate of 3.2 percent, slightly below the median forecast of economists surveyed by Dow Jones Newswires and The Wall Street Journal. The monthly inflation rate rose by 0.2 percent after a decline in June, meeting expectations. Nearly 90 percent of the monthly increase was attributed to a 0.4 percent rise in shelter costs, the Labor Department noted. Energy prices remained stable, while the food index increased by 0.2 percent. Core inflation, excluding food and energy prices, also eased to 3.2 percent, its lowest level since April 2021. The July CPI data is encouraging for the US Federal Reserve as it contemplates the appropriate timing to reduce interest rates from a 23-year high. The central bank aims to bring inflation down to its long-term target of two percent without causing economic downturn or a spike in unemployment. "Today’s report will bolster confidence within the Fed that inflation is indeed on a sustainable trajectory towards 2 percent," economists at High Frequency Economics (HFE) stated in a client note. Fed Chair Jerome Powell hinted last month that policymakers could reduce rates "as soon as" September if the data continues to meet expectations. With futures traders widely anticipating a Fed rate cut in September, according to CME Group data, the focus shifts to the magnitude of the initial cut. Traders estimate a 55 percent probability of a quarter-percentage point reduction.