Inflation in the U.S. dropped to its lowest level in three years in July, according to data released on Wednesday, setting the stage for a potential rate cut by the Federal Reserve next month.

The U.S. Bureau of Labor Statistics reported that the annual inflation rate in July was 2.9%, marking the first time it dipped below 3% since March 2021.

This marks a significant decrease from the 40-year high of 8.6% recorded in June 2022, which prompted a series of interest rate hikes by the Federal Reserve to curb spending and cool the economy.

With inflation now showing signs of recovery, the Federal Reserve is widely anticipated to announce a rate cut next month.

President Joe Biden addressed the inflation data, stating, "We have more work to do to lower costs for hardworking Americans, but we are making real progress, with wages rising faster than prices for 17 months in a row."

He also criticized large corporations, saying, "Prices are still too high. Large corporations are sitting on record profits and not doing enough to lower prices. That is why we are taking on Big Pharma to lower prescription drug prices. We are cutting red tape to build more homes while taking on corporate landlords that unfairly increase rent. And we are taking on price gouging and junk fees to lower everyday costs from groceries to air travel."

Inflation has become a focal point in the 2024 presidential election, with former President Donald Trump, the Republican nominee, blaming the Biden-Harris administration for the high prices and making "ending inflation" a key promise of his re-election campaign.

Democratic presidential nominee Kamala Harris has acknowledged that prices remain high and, like President Biden, has pointed to corporate practices as a contributing factor. She is expected to outline her economic policy in more detail later this week.