WASHINGTON (AP) — The Federal Reserve’s preferred inflation measure cooled last month, the latest sign that price pressures are waning in the face of high interest rates and moderating economic growth.

Thursday’s report from the Commerce Department said prices were unchanged from September to October, down from a 0.4% rise the previous month. Compared with a year ago, consumer prices rose 3% in October, below the 3.4% annual rate in September. That was the lowest year-over-year inflation rate in more than 2 1/2 years.

Excluding volatile food and energy costs, increases in so-called core prices also slowed. They rose just 0.2% from September to October, down from a 0.3% increase the previous month. Core prices rose 3.5% in October from a year earlier, below the 3.7% year-over-year increase in September. Economists closely track core prices, which are thought to provide a good sign of inflation’s likely future path.

With inflation easing, the Fed is expected to keep its key benchmark rate unchanged when it next meets in two weeks. The latest figures also suggest that inflation will fall short of the Fed’s own projected levels for the final three months of 2023.

In September, the Fed’s policymakers had predicted that inflation would average 3.3% in the October-December quarter. Prices are now on track to rise by less than that, raising the likelihood that Fed officials will see no need to further raise interest rates.

“They’ve got to be encouraged by this data,” Vincent Reinhart, chief economist at Dreyfus & Mellon and a former Fed economist, said of the central bank’s policymakers. “It is a nice trend down in core inflation. Under the hood, there is a slowing that suggests they’re making progress.”

In the past six months, core inflation has risen at just a 2.5% annual rate, not far above the Fed’s 2% target, and down sharply from a year earlier, when it was 5.1%.

A big drop in gas prices helped slow inflation last month. From September to October, the price of gas tumbled 4.9%. Prices at the pump have fallen further this month, to a national average of $3.25 a gallon Thursday, according to AAA.

Grocery prices, though, edged up 0.2% last month and were 2.3% above their average costs 12 months earlier. Those price increases, though smaller than they were last year, are still faster than was typically true before the pandemic.

Some individual grocery items rose sharply last month: Beef jumped 1.2% from September to October. Milk and processed fruits and vegetables rose 1%. Grocery prices overall are up 23% from their pre-pandemic level.

Still, Americans ramped up their spending last month, though at a modest pace. Consumer spending increased 0.2% in October, the report showed, a smaller gain than some big increases in the spring and summer.

But a moderating pace of spending, slowed by high borrowing costs, should cool the economy and help further ease inflation. On Wednesday, the government reported that American consumers spent enough to help drive the economy to a brisk 5.2% annual pace from July through September. Growth is expected to slow, though, to about a 1.5% pace in final three months of the year.

Spending fell sharply last month on large factory goods — cars, furniture and appliances, for example — which are often bought on credit. The declines in spending on those items suggests that the Fed’s rate increases are discouraging purchases in some areas. This trend could force businesses to keep price increases on hold or even cut prices to support sales.

Americans in general appear to be growing more price-sensitive in their shopping, which could also limit companies’ ability to raise prices, according to the Fed’s beige book, which was issued Wednesday. The beige book is a collection of anecdotes, mostly from businesses, assembled by the Fed’s 12 regional banks.

Since March 2022, the Fed has raised its key rate 11 times from near zero to roughly 5.4% in its drive to curb inflation. Most economists think its next move will be to cut rates, with the first cut possibly occurring as early as late spring.

On Tuesday, Christopher Waller, a key Fed official, suggested that a rate cut is possible by spring if inflation continued to head lower. Waller sounded the most optimistic notes of any Fed official since the central bank launched its streak of rate hikes, and he signaled that the rate increases are likely over.

According to the Fed’s preferred gauge reported Thursday, inflation peaked at 7.1% in June 2022. The central bank’s rate rate hikes have elevated the costs of mortgages, auto loans and other forms of consumer borrowing as well as business loans. The Fed’s goal in tightening credit has been to slow borrowing and spending and slow price increases.

Inflation is also cooling in Europe, where high interest rates have squeezed the economy and slowed growth. Inflation in the 20 countries that use the euro dropped to 2.4% in November from a year earlier, down from 2.9% in October.

Even as inflation has cooled, overall prices remain much higher than they were before the pandemic erupted in February 2020, leaving many Americans with a gloomy outlook on the economy. Consumer prices are still about 19% higher than they were right before the pandemic struck. Most Americans’ wages have risen slightly more than that. But inflation-adjusted wages haven’t increased as quickly as they did before the pandemic.

The U.S. inflation gauge that was issued Thursday, called the personal consumption expenditures price index, is separate from the government’s better-known consumer price index. The government reported earlier this month that the CPI rose 3.2% in October from 12 months earlier.

The Fed prefers the PCE index in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.