The UK's annual inflation rate fell to 6.8% in July, down from 7.9% in June, according to the latest data from the Office of National Statistics (ONS).
It is the smallest increase in the cost of living since February 2022.
A fall in gas and electricity, as well as a slowing down in the increase of food prices, are the major drivers behind the inflation rate decrease, according to the ONS.
However, core inflation, which strips out volatile items such as fuel and food remained unchanged at 6.9% in July while service sector inflation rose from 7.2% to 7.4%.
Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:
'While a drop in inflation provides some comfort, the figures show less of a drop in inflation than hoped for and will renew fears of a wage-price spiral, and of yet more base rate hikes in future.
'The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June's GDP growth.
'The cost of doing business crisis still has a grip on the small business community, as prices for many key inputs, from energy to components and raw materials, remain far above where they were a year ago.
'Any reduction in inflation is good news, but the huge toll that spiralling prices have inflicted is still being keenly felt by small firms.'