WASHINGTON (Reuters) – U.S. consumer prices rebounded as expected in July, but the trend remained consistent with subsiding inflation and did not change expectations that the Federal Reserve will cut interest rates next month.

The consumer price index increased 0.2% last month after falling 0.1% in June, the Labor Department’s Bureau of Labor Statistics said on Wednesday. In the 12 months through July, the CPI increased 2.9% after advancing 3.0% in June.

Economists polled by Reuters had forecast the CPI increasing 0.2% on the month and rising 3.0% year-on-year. The government on Tuesday reported a mild increase in producer prices in July.

Annual consumer price growth has moderated considerably from a peak of 9.1% in June 2022 as higher borrowing costs cool demand. While still elevated, inflation is moving towards the U.S. central bank’s 2% target.

The odds of a rate cut at the Fed’s Sept. 17-18 policy meeting are split between half a percentage point and 25 basis points. The rate pricing mostly reflects a jump in the unemployment rate to near a three-year high of 4.3% in July.

Economists, however, argue that the labor market would have to deteriorate considerably for the central bank to deliver a 50 basis point rate reduction. The fourth straight monthly increase in the jobless rate was mostly driven by an immigration-induced rise in labor supply rather than layoffs.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023.

Excluding the volatile food and energy components, the CPI rose 0.2% in July after rising 0.1% in June. In the 12 months through July, the core CPI advanced 3.2%. That was the smallest year-on-year increase since April 2021 and followed a 3.3% gain in June.