The battle against inflation took a wrong turn in December when consumer price increases accelerated for the first time in three months.

Consumer prices rose 3.4% over the 12 months ending in December, up from a 3.1% annual increase in November, the Bureau of Labor Statistics said Thursday. Viewed as a month-to-month rate, consumer prices increased 0.3% in December from November, the highest in three months, higher than would be required for inflation to fall to the Federal Reserve's target of a 2% annual rate. Rising housing costs accounted for most inflation in December, with gas, electricity, and food prices also contributing.

The uptick in the Consumer Price Index, more than forecasters had expected, was a notable setback in the Federal Reserve's efforts to quell inflation, and called into question market expectations that the central bank will soon begin to lower its key interest rate from its current 22-year high.

The data "should dampen market expectations of an early spring rate cut," Kathy Bostjancic, chief economist at Nationwide, wrote in a commentary. "We maintain our view that the Fed will wait until at least May to start reducing the policy rate."

Officials at the Federal Reserve have been trying to combat inflation with a campaign of interest rate hikes over the last year and a half. The Fed held its 澳洲幸运5官方开ꦏ奖结果体彩网:benchmark interest rate steady in D✤ecember and said it would pivot to rate cuts at some point, given how far inflation has fallen from its peak of 9.1% in June of 2022. However, Fed officials have also indicated they're willing to raise rates even higher if inflation doesn't stay on a downward trajectory.

The report did hold a significant silver lining: core inflation, which excludes volatile prices for food and energy, and which is closely watched by Fed officials as a sign of the direction of inflation, rose 3.9% over the year, less than the 4% increase in November. While still more than the 3.8% annual increase forecasters had anticipated, the slowdown in core inflation was a welcome sign that prices are still on the right track, albeit a bumpy one.

"While the December report is not encouraging, the results are also not cause for significant concern that progress on taming inflation is set to reverse course," Kurt Rankin, senior economist at PNC, said in a commentary.

Housing costs are a major reason that economists believe inflation is still on a downward path. The 0.4% monthly increase in housing costs accounted for more than half the inflation seen in the December CPI report. However, data from Zillow and other companies that track rent show that rent hikes have slowed significantly since 2022. For instance, the Zillow Observed Rent Index rose 3.3% over the year in November, down from double-digit increases in late 2021 through much of 2022.

The official government data used for the CPI has yet to reflect the slowdown, but economists expect it to catch up sooner or later.

"The recent overshoot in the CPI measure won’t last indefinitely, but we have no way of knowing when the two measures will re-converge," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary.