The Federal Reserve’s preferred measure of underlying US inflation rose at a mild pace and household spending picked up in July, reinforcing policymakers’ plan to start cutting interest rates next month.

The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.2% from June, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis — a metric economists say paints a more accurate picture of the trajectory of inflation — it advanced 1.7%, the slowest this year.

From a year ago, it rose 2.6%.

Inflation-adjusted consumer spending climbed 0.4%, an acceleration from the prior month.

Friday’s report supports the view that it’s time to begin unwinding the restrictiveness of monetary policy. Combined with emerging cracks in the labor market, the sustained cooling in inflation explains why Fed Chair Jerome Powell said last week “the time has come” for central bankers to start lowering borrowing costs, likely next month.

Stock futures remained higher and Treasury yields rose slightly after the report. Swaps traders held steady the pricing of the total rate cuts they foresee from the Fed for all of 2024.

— With assistance from Chris Middleton, Matthew Boesler, Cecile Daurat, and Michael Mackenzie