There were, however, some hopeful signs in the fight against inflation, with the report from the Labor Department on Wednesday showing a measure of underlying price pressures subsiding after barely budging for four straight months. That prompted financial markets to bet on a rate cut in June.

A resilient economy, the threat of broad tariffs on imported goods and mass deportations of undocumented immigrants - actions that are deemed inflationary - have led the U.S. central bank to project a shallower rate-cut path this year.

President-elect Donald Trump's incoming administration has also pledged tax cuts, which would juice up the economy.

"There's still more inflation-fighting work for the Fed to do, which is why it has shifted plans to more slowly reduce the still-restrictive federal funds rate," said Sal Guatieri, a senior economist at BMO Capital Markets. "It will stand pat later this month, and may not resume cutting rates until it gets some clarity on the inflation pass-through of the tariffs that could begin rolling out next week."

The consumer price index rose 0.4% last month, the largest gain since March, after climbing 0.3% in November, the Labor Department's Bureau of Labor Statistics said. A 2.6% jump in the cost of energy products accounted for more than 40% of the increase in the CPI. Energy prices, which had risen 0.2% in November, were boosted by a 4.4% surge in the cost of gasoline.

Consumers also faced higher prices for food, which rose 0.3% after advancing 0.4% in November. Grocery store prices rose 0.3%, driven by increases in the costs of cereals and bakery products, meats, poultry and fish. Egg prices soared 3.2%, reflecting an avian flu outbreak that has reduced supply.

In the 12 months through December, the CPI advanced 2.9%. That was the largest rise since July and followed a 2.7% increase in November. Some of the increase in the year-on-year CPI rate reflected last year's low readings dropping out of the calculation. Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year.

Progress bringing inflation back to the U.S. central bank's 2% target hit a snag in the second half of last year. Consumers' inflation expectations soared in January, with households concerned that tariffs would raise goods prices.

No rate cut is expected at the Fed's Jan. 28-29 policy meeting. Financial markets, however, raised bets on a rate reduction in June. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.

CORE INFLATION SLOWS

Excluding the volatile food and energy components, the CPI increased 0.2% in December. The so-called core CPI had risen 0.3% for four straight months. Rents increased 0.3% after climbing 0.2% in November. Owners' equivalent rent, a measure of the amount homeowners would pay to rent or earn from renting their property, rose 0.3% after advancing 0.2% in November.

But prices for hotel and motel rooms fell 1.0%. Healthcare costs edged up 0.1% amid marginal increases in the prices for physicians and hospital services. Prescription medication prices were unchanged. Airline fares, however, surged 3.9% while used cars and trucks prices rose 1.2%.

There were also increases in the costs of new motor vehicles, motor vehicle insurance, recreation, apparel and education. But the cost of personal care products and services fell. In the 12 months through December, the so-called core CPI increased 3.2% after climbing 3.3% in November.

While economists see fewer rate cuts this year, they are divided on whether the central bank will reduce borrowing costs again before the second half of the year.

Goldman Sachs expects two rate cuts this year, in June and December, a number revised down from three. Bank of America Securities believes the Fed's easing cycle is over.

The central bank launched its easing cycle in September and has lowered its benchmark overnight interest rate by 100 basis points to the current 4.25%-4.50% range.

The last reduction was in December when policymakers also projected two rate cuts this year instead of the four they had forecast in September. The policy rate was hiked by 5.25 percentage points between March 2022 and July 2023.