Inflation reached 8.5% in July, compared with a 40-year high of 9.1% in June, providing a measure of relief to consumers as gas prices fall.

Economists surveyed by The Wall Street Journal had projected inflation in July to fall to 8.7%. On a month-to-month basis, the July Consumer Price Index reading was unchanged from June — meaning no price growth was registered. That compares with June's month-on-month increase of 1.3%.

One key force driving inflation has been the price of gasoline. But last month, prices fell 7.7%, the Bureau of Labor Statistics said. While gas prices are still up 44% from a year earlier, the recent, multiweek decline helped cool off overall price growth in the economy. As of Wednesday, the national average price was $4.01 per gallon, according to AAA — about a dollar less than it was in June.

And it seems to be working, with demand for gasoline falling alongside oil prices, which have declined from more than $120 per barrel in June to about $97 per barrel on Tuesday.

Even with those declines, Federal Reserve officials are signaling they will continue their hard stance against further inflation. For one thing, they face a U.S. economy that continues to add jobs at a breakneck pace. Last week, the Bureau of Labor Statistics said the U.S. economy stacked up another 528,000 new payrolls — a sign that demand for labor remains strong.

And pay for private-sector workers is also climbing at a pace that is putting upward pressure on prices. In the second quarter, wages and salaries grew 5.8% compared with a year earlier, the fastest rate for records tracing back to 2001, although that is still below the current inflation rate.

As part of its effort to rein in high prices, the Fed raised its key rate by 0.75% in late July, its fourth rate hike of the year. 

"My view is that similarly sized [interest rate] increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way," Michelle Bowman, a member of the Federal Reserve board of governors, said in recent prepared remarks for the Kansas Bankers Association according to CNBC.

San Francisco Fed President Mary Daly said Sunday that the Fed is "far from done" with its work to fight inflation. "Americans are losing ground every day. So the focus has to be on bringing inflation down," Daly added.

That continued hawkish stance by the Fed is also putting pressure on stock prices.