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Inflation rose as expected in July, driven by higher housing-related costs, according to a Labor Department report Wednesday that is likely to keep an interest rate cut on the table in September.

The consumer price index, a broad-based measure of prices for goods and services, increased 0.2% for the month, putting the 12-month inflation rate at 2.9%. Economists surveyed by Dow Jones had been looking for respective readings of 0.2% and 3%.

Excluding food and energy, core CPI came in at a 0.2% monthly increase and a 3.2% annual rate, meeting expectations.

The annual rate is the lowest since March 2021, while the core is the lowest since April 2021, according to the Bureau of Labor Statistics report. Headline inflation was 3% in June.

A 0.4% increase in shelter costs was responsible for 90% of the all-items inflation increase. Food prices increased 0.2% while energy was flat.

Stock market futures were mildly negative after the report while Treasury yields were mostly higher.

Though food inflation was soft on the month, multiple categories saw sizeable increases, most notably eggs, which were up 5.5%. Cereals and bakery items declined 0.5% while dairy and related products fell 0.2%.

Inflation readings have been gradually drifting back to the central bank’s 2% target. A report Tuesday from the Labor Department showed that producer prices, a proxy for wholesale inflation, rose just 0.1% in July and were up 2.2% year over year.

Fed officials have indicated a willingness to ease, though they’ve been careful not to commit to a specific timetable nor to speculate about the pace at which cuts might occur. Futures market pricing currently points to about an even chance of a quarter- or half-percentage point reduction at the Sept. 17-18 meeting and at least a full point in moves by the end of 2024.

As inflation has eased, percolating concerns about a slowing labor market seemed to have raised the likelihood that the Fed will start cutting for the first time since the early days of the Covid crisis.

“Coming down but the sticky areas continue to be sticky,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in describing the CPI report. “We have to keep a close eye on both the inflation data as well as the employment data.”

There were several crosscurrents in the report that indeed suggest inflation is stubborn in some areas.

This is breaking news. Please check back for updates.

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