Volkswacht Bodensee - US consumer inflation rises to 2.9 percent in December

The consumer price index (CPI) accelerated to 2.9 percent last month from a year ago, up from 2.7 percent in November, the Labor Department said in a statement.

This was in line with the median forecast of economists surveyed by Dow Jones Newswires and The Wall Street Journal.

"Today's inflation data is confirmation that the Fed is right to be cautious with its monetary policy," CMC Markets chief market analyst Jochen Stanzl wrote in a note to clients.

The US central bank has cut rates by a full percentage point since September as it looks to bolster the labor market.

The recent uptick in inflation adds to expectations that it will remain firmly on pause at its next rate decision later this month.

However, higher prices could complicate President-elect Donald Trump's economic plans as he prepares to return to office on Monday.

Trump has floated several policies, from tariffs to deportation, that many economists say could have an inflationary impact.

The Republican and his supporters have disputed this characterization, claiming that many of his proposals aimed at deregulation and boosting energy production should help keep prices in check.

On a monthly basis, inflation rose by 0.4 percent in December, up from 0.3 percent in November.

- Core inflation eases -

One of the biggest drivers of inflation in December was the energy index, which jumped by 2.6 percent, accounting for "over" 40 percent of the monthly increase, according to the Labor Department.

In good news for the Fed, annual inflation excluding volatile food and energy costs came in at a lower-than-expected 3.2 percent, marking a slight decline from the month earlier.

So-called "core" inflation increased by 0.2 percent, also slightly below expectations.

US bonds rallied as investors reacted to signs of slowing core inflation, pushing down yields, which move inversely to prices.

Lower yields on US Treasurys -- especially the popular 10-year note -- would be good news for consumers, since they are referenced by businesses when they price mortgages and car loans.

Wednesday's data release is nevertheless expected to fuel expectations that the Fed will pause rate cuts later this month, as headline inflation appears to be moving away from its long-term goal of two percent.

The Fed uses a different inflation measure to set interest rates, known as the personal consumption expenditures price index. That index has also been rising in recent months.

Futures traders see a roughly 97 percent chance that the Fed will vote to hold interest rates between 4.25 and 4.50 percent at the next rate meeting on January 28 and 29.

J.Sauter--VB