Inflation may be on the verge of falling to an annual rate of 2%, consistent with the Federal Reserve’s definition of stable price growth. However, reaching this milestone would come with an asterisk.

An inflation and consumer spending report released Thursday from the Bureau of Economic Analysis is expected to show the cost of living rose 2.1 percent over the 12 months in September, according to forecast surveys by Dow Jones Newswires and The Wall Street Journal. Measure, named Personal consumption expenses The price index is down from annual inflation of 2.2% in August and the lowest in three years.

The upcoming report could be a significant milestone for economists evaluating inflation data, as the Fed targets an annual rate of 2 percent price growth when setting the nation’s monetary policy.

There is a catch when it comes to PCE

However, the Fed assesses inflation primarily using core PCE, which, unlike the headline PCE figure, excludes volatile food and energy prices. Economists and Fed officials use core inflation to judge overall inflation trends because food and gas prices can fluctuate from month to month for reasons that have little to do with the overall trajectory of the economy.

Core PCE rose 2.7% in August, and the median forecast is for a decline to 2.6%, so it’s still well above the Fed’s target of a 2% annual rate. However, it is well below its recent peak of 5.6% reached in February 2022.

Falling gas prices helped lower headline inflation, while core inflation remained fairly high, largely due to prices for accommodation they were hotter than expected.

Thursday’s report may show some setbacks in the near-term inflation trend, even as year-over-year numbers improve. Headline inflation is expected to have risen 0.2% in September from August, compared with a monthly increase of 0.1% in the previous month. The median forecast for monthly core inflation is for a 0.3% rise, up from 0.1% in August, mirroring an increase in Consumer price indexa separate inflation report from the Bureau of Labor Statistics released earlier this month.