11:05 AM EDT, 04/10/2024 (MT Newswires) -- US consumer inflation came in higher than predicted in March, prompting markets to sharply scale back expectations for a June interest rate cut by the Federal Reserve.

The consumer price index advanced 0.4% sequentially last month, the Bureau of Labor Statistics reported Wednesday, matching February's growth rate but coming in ahead of the 0.3% consensus, according to a Bloomberg-compiled survey. Annually, inflation accelerated to 3.5% from 3.2% in February, higher than the Street's view of 3.4% for March.

"This will likely not sit well with the (Fed), and may push more policymakers into the two rate-cut camp," Oxford Economics Chief US Economist Ryan Sweet said in a note. "The central bank's data-dependent mantra could force it to keep rates high for longer."

Core inflation, which excludes the volatile food and energy components, rose 0.4% in March, unchanged from the prior two months but above the 0.3% expectation modeled by analysts. On an annual basis, core inflation came in at 3.8%, higher than the 3.7% market view.

Monthly food prices ticked up 0.1% in March after coming in flat the month prior while energy price growth decelerated to 1.1% from 2.3%. Annually, food price growth was 2.2%, while energy prices rose 2.1%.

Combined, shelter and gasoline contributed over half of the monthly increase in the index for all items, according to the BLS. US equity markets were falling intraday Wednesday.

Markets widely expect the central bank's Federal Open Market Committee to keep its rates unchanged on May 1, according to the CME FedWatch Tool. Expectations for a June cut tumbled to 21% on Wednesday from 56% on Tuesday. Recent data pointing to strength in the labor market and inflation are "giving the central bank the wiggle room to be patient," Sweet said.

"Financial markets are not going to like the above-consensus gain in the headline and core CPI," Sweet said. "Some tightening in financial market conditions may do some of the work for the Fed, allowing it to sit on its hands potentially longer than we anticipate."