Consumer prices rose 3.5% from a year ago in March

The consumer price index accelerated at a faster than expected pace in March, pushing inflation higher and likely keeping the Federal Reserve on hold with interest rates.

The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage point higher than in February. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.

Excluding volatile food and energy components, core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared to respective estimates for 0.3% and 3.7%.

Shelter and energy costs drove the increase on the all-items index.

Energy rose 1.1% after increasing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.

Food prices increased just 0.1% on the month and were up 2.2% on a year-over-year basis. Elsewhere, used vehicle prices declined 1.1% and medical care services prices rose 0.6%.

The report comes with markets on edge and Fed officials expressing caution about the near-term direction for monetary policy. Central bank policymakers have repeated calls for patience on cutting rates, saying they have not seen enough evidence that inflation is on a solid path back to their 2% annual goal.

Markets currently expect the Fed to start cutting interest rates in June with three reductions in total expected this year, according to futures market pricing. Later Wednesday, the Fed will release minutes from its March meeting, providing more insight into where officials stand on monetary policy.

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