Annual inflation cooled more than expected last month, to 2.9 percent, according to a Consumer Price Index report released today. It was the first time that the inflation gauge had dropped below 3 percent since 2021.

“On a practical level, there’s no meaningful distinction between 2.9 percent and 3 percent,” our economics reporter, Ben Casselman, told me. “It’s the difference between your $6 latte costing $6.17 next year or $6.18. But the larger decline in inflation is absolutely significant.”

Just two years ago, prices were rising at more than 9 percent per year, and prominent economists were arguing that it would take a recession to bring inflation under control. “Now, inflation is basically back to its historic range, albeit still above where the Fed would like,” Ben said. “That’s a pretty remarkable turnaround.”

Most economists now see a recession-free “soft landing” as the likeliest scenario, Ben said. But the economy still faces potential hazards: The unemployment rate is low, but it has risen steadily, and many people are falling behind on their credit card bills. Those factors, along with cooling inflation, have put the Federal Reserve firmly on track to cut interest rates at its meeting next month.