A jump in energy and food prices hit the US last month, as progress stabilising prices remained elusive.

On average, prices in December were up 2.9% compared with a year earlier, up from 2.7% in November, the Labor Department said.

Energy prices accounted for more than 40% of the rise in inflation last month, according to the monthly report. It also showed egg prices shot up more than 36% compared with 2023, as a bout of bird flu hit supply and led to shortages.

But prices for other items rose by less than expected over the month, calming market fears that the US central bank might have to act more aggressively to stabilise prices.

So-called core inflation – which strips out often bumpy food and energy prices – was up just 3.2% from December 2023 and just 0.2% from November, rising less than analysts had expected.

Economists say that metric is a better indicator of underlying trends.

Share prices in the US surged and bond yields – interest rates on US government debt – fell in early trading on Wednesday in New York, reflecting market relief.

Seema Shah, chief global strategist at Principal Asset Management, said the latest figures should relieve “some of the anxiety that the US is at the beginning stages of a second inflation wave”.

“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,” she said.

Inflation, the rate of price increases, has come down significantly in the US since 2022, when it shot past 9%.

Investors had expected the Federal Reserve, which had hiked rates to the highest levels in more than two decades to fight the problem, to cut rates this year as a result.

But the Fed is less likely to cut interest rates if the economy is growing. As such, last month’s stronger-than-expected job creation figures raised doubts about how much US interest rates might fall in the months ahead.

Investors are also nervous that plans by President-elect Donald Trump for tariffs, mass migrant deportations, and tax cuts could put upward pressure on prices. If this did drive inflation, it too would make Fed rate cuts less likely.

Last month, the data showed prices ticked up for many items, including used cars, airline fares, medical care and car insurance.

Grocery prices climbed 0.3% over the month and were up 1.8% from a year ago.

Rents and other housing prices – which have been among the biggest drivers of inflation – rose 0.3% from November, the same pace as in the prior month. They were up 4.6% compared with December 2023.

Petrol prices rose 4.4% from November, but remained lower than a year ago.

The Fed is widely expected to keep its key rate, which now stands at about 4.3%, unchanged at its meeting this month.

Tina Adatia, head of fixed income for client portfolio management at Goldman Sachs Asset Management, said inflation would have to cool more for the Fed to cut further but that today’s data would keep those hopes alive.

“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,” she said.