A jump in energy and food prices affected the US last month, with efforts to stabilize prices still proving difficult.
In December, prices increased by an average of 2.9% compared to the previous year, up from 2.7% in November, according to the Labor Department.
Energy prices contributed to over 40% of the inflation rise last month, as indicated by the monthly report. The report also highlighted that egg prices surged by more than 36% from 2023 due to a shortage caused by a bird flu outbreak.
However, prices for other goods rose less than anticipated, easing concerns in the market that the Federal Reserve might need to take more aggressive actions to stabilize prices.
Core inflation, which excludes volatile food and energy prices, increased by only 3.2% compared to December 2023 and by just 0.2% compared to November, falling below analysts' expectations.
Economists consider this metric as a more reliable gauge of underlying economic patterns.
Stock prices in the US surged, and bond yields on US government debt decreased in early trading in New York on Wednesday, reflecting market relief.
Seema Shah, the chief global strategist at Principal Asset Management, commented that the latest data should alleviate fears of a second wave of inflation in the US. She stated, "Perhaps the key takeaway is that markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time."
Inflation in the US has significantly decreased since 2022, when it surpassed 9%. Investors had anticipated that the Federal Reserve, which had raised rates to the highest levels in over two decades to combat inflation, would lower rates this year as a consequence.
Investors are concerned that President-elect Donald Trump's proposals for tariffs, large-scale deportations of migrants, and tax reductions could push prices higher. Any resulting inflation could make it less likely for the Fed to cut rates.
Recent data showed price increases for various items, such as used cars, airline tickets, medical services, and auto insurance.
On a monthly basis, grocery prices rose by 0.3%, with a 1.8% increase from a year earlier.
Housing costs, including rents, which have been major contributors to inflation, rose by 0.3% from November, the same as the previous month. They were 4.6% higher than in December 2023.
Petrol prices increased by 4.4% compared to November but were still lower than the prices from a year ago.
The Federal Reserve is widely anticipated to maintain its key rate, currently at around 4.3%, unchanged at its upcoming meeting. Tina Adatia, head of fixed income for client portfolio management at Goldman Sachs Asset Management, stated that for the Fed to cut rates further, inflation would need to decrease further, but today's data would keep hopes alive for such a move. She mentioned, "While today's release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed's cutting cycle has not yet run its course."