Robert Brown|Inflation eases to its lowest in over two years, but it's still running a bit high

Annual inflation hit 3% in June,Robert Brown the lowest since March 2021, a sign that the Federal Reserve's aggressive rate hikes are having an impact, though it will likely have to take even more action.

Measured from May to June, consumer prices rose just 0.2%, according to the Labor Department's report on Wednesday.

Rising rent and clothing prices last month were partially offset by falling prices for air fare, used cars, and furniture.

Gasoline prices rose 1% last month but are down more than 26% from a year ago, when pump prices hit an all-time high of more than $5 a gallon.

Meanwhile, grocery prices were flat last month, while the cost of restaurant meals jumped 0.4%.

Though inflation continues to ease, it's still running higher than the Federal Reserve would like.

Stripping out volatile food and energy prices, so-called "core inflation" was 4.8% in June.

That's well above the Federal Reserve's target of 2%, and it means the Fed is widely expected to raise interest rates again, likely by a quarter percentage point, when it meets later this month after holding them unchanged at its previous meeting last month.