In August, consumer prices rose by 2.5 percent compared to the previous year. This is the smallest increase since the beginning of 2001. Although food prices have largely stabilized after the sharp increase in the previous two years, the cumulative price increases are still a nuisance for many consumers.

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Inflation fell to its lowest level in three and a half years in August, paving the way for the Federal Reserve to begin cutting interest rates next week.

Consumer prices rose 2.5% in August from a year earlier, the smallest annual increase since February 2021, according to a Labor Department report Wednesday.

Here are four things you should know about the Cost of Living Report.

Housing costs continue to rise, but gasoline is getting cheaper

Housing costs were the biggest driver of inflation last year, rising by 5.2 percent. Gasoline prices, on the other hand, fell by more than 10 percent.

Overall, prices for goods have fallen by almost 2% over the past 12 months, especially for used cars and trucks. However, the cost of services such as hairdressers and car repairs continues to rise.

Food prices have largely stabilized, but are not falling

One of the places where consumers feel inflation most is the supermarket. People shop for groceries every week, which regularly reminds them that milk and eggs cost more than they used to. But after a sharp rise in 2022 and 2023, food prices have largely stabilized, rising by less than 1% over the past 12 months and remaining unchanged between July and August.

Federal Reserve Governor Chris Waller understands that this is not much consolation for those who lower Prices in the supermarket.

“I don’t ignore the pain and suffering that people are going through because of this,” Waller told an audience at Notre Dame last week. “I go to the supermarket myself. I look at certain prices and say, ‘No, no way. I’m not buying that.'”

But Waller doubts that grocery prices will ever return to 2019 or 2020 levels. Instead, he suspects, rising wages will gradually offset higher prices, allowing shoppers to fill their shopping carts again. According to the Labor Department, grocery prices have risen 25.5 percent since the pandemic began, while average wages have increased 23.5 percent.

Inflation remains a powerful political issue

Prices are currently rising at the slowest pace since President Biden’s second month in office, but many people remain frustrated by the cumulative price increases of the past three years.

Both former President Trump and Vice President Harris addressed the high cost of living in their debate on Tuesday night.

“We have inflation like few people have ever seen before – probably the worst in the history of our country,” Trump claimed, exaggerating the pace of price increases that peaked at 9.1 percent in 2022. “This has been a disaster for the people, for the middle class, but for every class.”

Trump offered few concrete solutions to inflation. Many economists warned that his proposal to impose a 10 percent tariff on all imports and even higher taxes on imports from China would drive prices up, not down.

Harris also pointed to voters’ frustration with high prices, saying, “Housing costs are too high for far too many people.”

The Federal Reserve is ready to slowly lower interest rates

The central bank has tried to curb inflation by pushing interest rates to their highest levels in more than two decades, making it more expensive to get a car loan, finance a business or transfer a balance on a credit card.

While inflation is still above the Fed’s target of 2%, it is moving in that direction. As a result, the Fed is now ready to start cutting interest rates to avoid an unnecessary slowdown in the economy and the unemployment that would come with it.

“Upside risks to inflation have declined and downside risks to employment have increased,” Fed Chairman Jerome Powell said last month. “It is time to adjust policy.”

Investors were unsure whether the Fed would start with a modest quarter-percentage-point rate cut or a more aggressive half-percentage-point cut. Wednesday’s inflation report had markets expecting a smaller cut, disappointing some investors and causing stocks to sell off. The report showed slightly tamer monthly inflation, which will likely prompt the Fed to take a more cautious approach.