(NewsNation) — Falling prices gave Americans a small break from high inflation in July, though the surge in overall prices slowed only modestly from the four-decade high it reached in June.

Inflation slowed to a still-high 8.5% compared with a year earlier, the Bureau of Labor Statistics reported Wednesday. This is a slowdown from June’s figure of 9.1%. On a monthly basis, prices were unchanged from June to July, the smallest such rise more than two years.

Americans have been dealing with sky-high inflation for more than a year, following a rapid economic recovery from business shutdowns during the coronavirus pandemic. The consumer price index has been surging since early 2021, with staple groceries including bread, milk and eggs getting ever more expensive.

The Federal Reserve has hiked interest rates in its quest to tame inflation, and it looks to the monthly inflation trends to help determine its rate decisions at future meetings. The rate hikes have raised concern about the Fed triggering a recession, but Chairman Jerome Powell has pointed to the strong labor market as an indication the U.S. economy is still resilient.

“The bad piece of news today is that even though overall inflation is expected to drop marginally, what we call ‘core inflation’ is actually expected to rise this month,” Moynihan explained. “Core inflation is all of inflation except for food and energy costs.”

Moynihan said that because of this, the core CPI is not going to be ideal for the Fed, but consumers’ wallets could see some relief this month.

The consumer price index report affects the cost of living for 70 million people who are on Social Security and for 34 million renters signing or renewing leases.

Social Security COLA, or cost of living adjustment, is based on quarterly inflation. If changes went into effect Wednesday, that would mean a 9% increase in a cost of living adjustment for those on Social Security.

Aneta Markowska, chief economist at Jefferies, told CNBC that two of the four factors driving inflation — commodity prices and supply chain issues — are going away, but the housing and labor markets are still there.

“You still have a problem with services inflation, and that’s driven by shortages in housing and labor. That’s not going away any time soon, until the Fed manages to destroy demand, and that hasn’t happened,” Markowska said to CNBC.

President Joe Biden has already pointed to falling gas prices as a sign that his policies — such as releases of oil from the nation’s strategic reserve — are helping combat the higher costs that have hammered household budgets, particularly for lower-income families.

On Friday, the House is poised to give final congressional approval to a revived tax-and-climate package pushed by Biden and Democratic lawmakers. The bill, which among other things aims to ease pharmaceutical prices by letting the government negotiate Medicare’s drug costs, is expected to cut the federal budget deficit by $300 billion over a decade.

Yet economists say the measure, which its proponents have titled the Inflation Reduction Act, will have only a minimal effect on inflation over the next several years, though it could slow price increases a bit more later this decade.

The Associated Press contributed to this report.