Inflation continued to ease last month from its war-driven surge earlier in the year, but prices still remain at a high level as constrained fuel supplies have increased the cost of living.

The consumer price index rose 0.1% in July from a month earlier, the Labor Department reported Wednesday, and 3.4% from the previous year on a seasonally adjusted basis. Stripping out volatile food and energy prices, prices rose 2.5% over the year.

In May, a 4.2% annual increase was the fastest pace in over three years when the closure of the Strait of Hormuz sent oil prices soaring. The report for June was unexpectedly mild, with inflation at 3.5% over the year and negative 0.4% over the month, as oil prices fell in hopes that the war might soon end.

The report comes as the Federal Reserve is weighing whether to raise interest rates, after leaving them steady all year despite inflation that has been running above the central bank’s 2% target for more than five years. The Fed’s policy committee will receive one more inflation reading before its next meeting in mid-September.

“It’s reassuring that we’ve stepped down in terms of some of the pressures we were seeing early this year,” said Josh Hirt, an economist with Vanguard’s Investment Strategy Group. “But this is still putting us on a track that doesn’t necessarily bring the year-over-year rate at the end of the year below 3%.”

As the Middle East war has dragged on, gasoline prices have popped up again and averaged $4.06 nationwide in early August, according to AAA. Overall energy costs fell 1.5% in July, but they are still nearly 15% higher than they were at this time last year. The war’s impact on fuel costs was also visible in airline fares, which jumped 2.2% from June and were up 25.5% over the past year.

The elevated costs come at a time when hiring has slowed drastically and Americans are seeing slower wage gains. The overall annual inflation rate for July remained above the 3.2% increase in average hourly earnings over the same period, which means that workers are still losing ground in their spending power.

Three of the 12 members of the Fed’s policy committee voted in favor of raising rates last month. But a very weak jobs report for July may heighten concerns that increasing borrowing costs could break a fragile labor market.

Motio Research tracks a wider range of household income, including government benefits, and found that its three-month average dropped in June on both a nominal and inflation-adjusted basis after trending upward for most of the past year.

“Household income has its own cycle, and historically it takes years after a recession to recover,” said Matías Scaglione, Motio’s principal economist. “When it recovers, it has this mature phase, and if it deteriorates again, that is worrying. That is what we are seeing now.”

Consumer spending has held up remarkably well in the face of high gas prices, powered in large part by higher-income Americans buoyed by the health of their stock portfolios. Lower-income workers have shown more strain, with rising delinquencies on credit cards, auto loans and student debt.

However, the last few months have brought some relief in the categories that matter most to those without bulging brokerage accounts. Grocery prices declined slightly over the month, as the cost of meat, fish, poultry and eggs fell. The price of used cars has been essentially flat for the last couple of years. The cost of prescription drugs has fallen 3.1% over the year. And rents have been increasing more slowly as apartment buildings are completed in cities that saw a surge of construction.

“These factors are key to the fading ‘K’ shape,” said Ian Wyatt, chief economist at Huntington Bank, referring to the divergence in fortunes of the wealthy and the poor. “The cost pressures that were more impactful on lower-income consumers are not there, other than gasoline.”

The fading impact of new tariffs has also taken the edge off growth in goods prices. Household furnishings have increased less than 1% since this time last year, for example, and a rapid jump in apparel prices seems to have leveled off.

Some retailers, such as Walmart and Floor &Decor, are making selective price cuts as they receive refunds for earlier tariffs they paid that were ruled illegal by the Supreme Court this year. That could allow for some relief in the second half of the year as stores try to win over cost-conscious shoppers, said Michael Lasser, a retail stock analyst at UBS.

“By and large, the leading retailers are using those funds to reinvest in promotions, particularly around these key events like back to school. We expect that to be the case around Halloween, as well as the holiday spending period,” he said.

Hotel prices dropped 3.3% in one month, after a 2.8% drop in June, as elevated room rates for the World Cup faded.

But other factors are pushing prices higher at the same time, including the data center construction boom, which has intensified demand for memory chips. Computer software and accessories rose 0.5% over the month and were up more than 21% since the previous July. Apple’s price increases on laptops helped pull the index for computer gear up 3.5% in one month.

Consumers also may not have seen the end of energy-driven price increases. The bump in July as fighting in the Middle East resumed will take some time to work its way through to other goods, and companies are still trying to recoup lost profits from earlier in the year as they absorbed the unexpected fuel charges.

Take Smithfield Foods, the publicly traded meat processor that specializes in deli slices. It saw lower operating profits on its packaged meats segment from a year earlier, which it hopes to recover in part through price increases.

“We faced elevated input costs relative to raw materials, fuel, freight and resin-based packaging, and there’s a little bit of spillover of that into the second half,” Mark Hall, Smithfield’s chief financial officer, said on the company’s second quarter earnings call this week. “So it takes time for pricing and other mitigation efforts for us to catch up.”

This article originally appeared in The New York Times.

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