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, the 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% rise in shelter costs was responsible for 90% of the all-items inflation increase. Food prices climbed 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 a slightly better chance of a quarter percentage point reduction at the Fed’s next scheduled meeting, Sept. 17-18, and at least a full point in moves by the end of 2024.

“Today’s CPI print removes any lingering inflation obstacles that may have been preventing the Fed from starting the rate cutting cycle in September,” said Seema Shah, chief global strategist at Principal Asset Management. “Yet, the number also suggests limited urgency for a 50 basis point cut.”

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.

Automotive prices continued to decline, with new vehicles down 0.2% and used cars and trucks off 2.3% for the month and 10.9% from a year ago. However, auto insurance costs climbed another 1.2% and are up 18.6% on a 12-month basis.

On the shelter component, which makes up more than one-third of the index, an item that asks property owners what they could get in rent increased 0.4% and was up 5.3% annually, again defying Fed expectations for an easing in housing-related costs.

On the other hand, multiple categories showed signs of deflation on the month, including medical care services (-0.3%), apparel (-0.4%) and core commodity prices (-0.3%).