Here’s the inflation breakdown for July, in one chart

Annual inflation rose slower than expected in July, a welcome sign for consumers who have been grappling with high costs. But many Americans are still feeling the sting of essential expenses such as shelter and energy.   

The consumer price index rose 0.2% for the month and 3.2% from one year ago, according to the U.S. Bureau of Labor Statistics. While the annual rate for inflation was below expectations, it marked an increase from 3% in June. 

July’s CPI report was “better than we were expecting,” said Eugenio Aleman, chief economist at Raymond James. But the biggest issue is “shelter costs continue to remain strong.”

The CPI is a key gauge of inflation, measuring the average price changes over time for goods and services. While July’s annual inflation was higher than June’s, it’s still a sizable drop from the 8.5% reading one year ago.

Nearly all of the monthly inflation increase came from shelter costs, which increased by 0.4% and were up 7.7% compared with one year ago. “We have been expecting shelter costs to start weakening considerably,” Aleman said. “But it hasn’t happened.” 

Despite rising oil costs, energy prices increased just 0.1% in July and food increased 0.2%, according to the bureau. However, there was relief for used vehicle prices, which dropped by 1.3%, and medical care services, which were down 0.4%. “That was very good news for consumers,” Aleman said.

“Inflation is moderating and headed in the right direction,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s still too high for the Federal Reserve’s comfort, but quickly moving toward its target.”

The Fed approved another interest rate hike in July, still aiming for its 2% inflation target. But the central bank may be reaching the end of its rate-hiking cycle, some officials say.   

“If everything roughly…