U.S. underlying inflation in July showed a moderate pace, which could alleviate pressure on the Federal Reserve to raise interest rates.

Data released Wednesday by the U.S. Bureau of Labor Statistics showed that the core consumer price index (CPI), which excludes volatile food and energy categories, rose 0.2% month-over-month. On an annual basis, the core CPI increased 2.5%, matching the lowest level since March 2021.

Overall, the consumer price index rose 0.1% month-over-month in July and 3.4% year-over-year.

Actual vs. Estimated Values: CPI (monthly) +0.1% vs. +0.1%; Core CPI (monthly) +0.2% vs. +0.2%; CPI (yearly) +3.4% vs. +3.4%; Core CPI (yearly) +2.5% vs. +2.5%.

The report indicates that the energy price shock triggered by the Iran conflict continued to fade in July. These figures could give the Federal Reserve more room to weigh inflation pressures against the recent slowdown in hiring when considering whether to raise borrowing costs at its September 15-16 meeting.

Ahead of the September meeting, policymakers will also see additional employment and inflation reports. Investors will be closely watching Fed Chair Kevin Warsh's anticipated speech later this month at the central bank's annual Jackson Hole symposium.

U.S. stock index futures edged higher, while Treasury yields saw little change. Investors have scaled back their bets on a Fed rate hike in September.