Consumer prices rose 7.1% in November, continuing a monthslong decline from a 40-year record reached over the summer.
Economists had predicted a CPI increase of 7.2%.
Monthly inflation also fell significantly. Prices rose 0.1% in November, cooling down from a 0.4% increase in October.
The top contributor to the monthly price increase came from shelter costs, which rose 0.6% in November. Food prices also jumped over the month, rising 0.5%.
But prices fell for a host of goods, including gasoline, used cars and trucks and medical services.
The decline in inflation follows a string of aggressive rate hikes from the Federal Reserve aimed at bringing prices down to normal levels.
The inflation data arrives a day before the Fed is expected to impose another borrowing cost increase. Economists project the Fed will raise rates by 0.5% on Wednesday, a slowdown from three consecutive jumbo-sized rate hikes of 0.75% but still a significant intensification of its fight against price increases.
By raising borrowing costs, the Fed has tried to slash inflation by cooling the economy and choking off demand. The approach, however, risks tipping the U.S. into a recession and putting millions out of work.
So far, however, the labor market has proven resilient, bolstering the hopes of policymakers seeking to avert a shutdown but also raising fears of a prolonged bout of inflation driven by wage gains.
Hiring last month exceeded expectations and wages grew a blistering 5.1% compared to a year earlier, offering welcome relief for workers strained by price hikes.
But rising wages often push companies to hike prices to make up for the added costs, which can worsen inflation and make it more difficult to reverse.
Despite the robust job market, growing evidence suggests the Fed's rate hikes have put the brakes on some economic activity.
Home sales fell for the ninth month in a row in October, the most recent month on record. Sales of existing homes, such as single-family homes and condominiums, were down about 28% from a year earlier.
Meanwhile, the personal savings rate fell to 2.3% last month, the lowest rate in nearly two decades, according to data from the Commerce Department. The failure to stash extra funds suggests that savings stockpiled during the pandemic have strained under the weight of high prices.