A closely-watched report on US inflation showed consumer price increases ticked lower during the month of August on an annual basis, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.

The Consumer Price Index (CPI) increased 2.5% over the prior year in August, which was a deceleration compared to July's 2.9% annual gain in prices and the lowest annual rate since early 2021. The yearly increase was also in-line with economist expectations.

The index rose 0.2% over the previous month, matching both July's monthly increase and what economists had expected.

On a "core" basis, which strips out the more volatile costs of food and gas, prices in August climbed 0.3% over the prior month and 3.2% over last year. Core prices rose 0.2% month over month and 3.2% on an annual basis in July.

U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., May 1, 2024. REUTERS/Kevin Lamarque (REUTERS / Reuters)

Inflation, although moderating, has remained above the Federal Reserve's 2% target on an annual basis. But recent economic data, including a weakening labor market, points to an all-but-certain rate cut by the end of the Fed's next policy meeting on Sept. 18.

"The time has come for policy to adjust," Fed Chair Jerome Powell said at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo., last month.

The question now is just how much policy adjusting the Fed will do when it comes to slashing rates.

As of Tuesday, markets were pricing in a nearly 100% chance the Federal Reserve cuts interest rates by the end of its September meeting. However, immediately following the data's release, the odds of a 50 basis point cut versus a 25 basis point cut were split 73/27 after a 56/44 chance placed by traders last week, per the CME FedWatch Tool.