The post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low, clearing the way for the Federal Reserve to cut interest rates.

Wednesday’s report from the Labor Department showed that consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July. It was the fifth straight annual drop and the smallest since February 2021. From July to August, prices rose just 0.2%.

Excluding volatile food and energy costs, so-called core prices rose 3.2% in August from a year ago, the same as in July. On a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Economists closely watch core prices, which typically provide a better read of future inflation trends.

“Today’s report will add to confidence within the Fed that inflation is indeed on a sustainable path towards 2%,” the Fed’s target level, Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients.

A key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago. And used cars fell 1% last month. Measured from a year earlier, used car prices have tumbled 10.4%.

The Fed’s policymakers have signaled that they’re increasingly confident that inflation is falling back to their 2% target and are now shifting their focus to supporting the job market, which is steadily cooling. As a result, they are poised to begin cutting their benchmark interest rate next week from its 23-year high in hopes of bolstering growth and hiring.