Rising gas and housing prices in February pushed inflation higher than forecasters had predicted in February, the second consecutive month that the closely watched number was hotter than expected.

The cost of living as measured by the Consumer Price Index was 3.2% higher in February than the year before, up from a 3.1% annual inflation rate as January, the Bureau of Labor Statistics said Tuesday. The increase was driven by an uptick in gas and housing prices through the month.

Economists surveyed by Dow Jones Newswires and the Wall Street Journal had projected that CPI would come in at 3.1%.

Ahead of the report, many economists had believed a surge in consumer prices in January that caught forecasters off guard was more of a statistical fluke and less an indication that inflation was flaring up again, and that it would resume its recent downward trend in coming months. But that uptick is proving more stubborn than expected.

Inflation numbers are closely watched by officials at the Federal Reserve, who have said they are looking for further evidence that price pressures are under control before cutting the Fed's benchmark interest rate. The Fed has been holding the fed funds rate at a 23-year high to discourage spending and subdue high inflation by rebalancing supply and demand throughout the economy.

Crucially for the outlook for Fed rate movements, “core” inflation, which excludes volatile prices for food and energy, fell to a 3.8% annual rate from 3.9% in January, reaching its lowest since May 2021 though less of a downtick than the reduction to 3.7% that forecasters had called for. While core measures of inflation leave out some of the most important costs to household budgets, the Fed watches them closely because they provide a better idea for where prices are headed in the future.

About an hour after the numbers were released, trader were pricing in about 69% chance that the Fed would cut the fed funds rate in June, according. to the CME Group's FedWatch Tool, which forecasts rate movements based on Fed funds futures trading data. That was little changed from just before the release.

A cut in the fed funds rate would ease the upward pressure the Fed has put on interest rates for mortgages and all kinds of other loans.