The headline figure came in at 3.4% for December, according to data from the Bureau of Labor Statistics, up from November’s 3.1% and above economist predictions of 3.2%.

Core inflation has continued to ease, dropping to 3.9%.

Eurozone inflation rises to 2.9%

Despite this, markets are still predicting the first cut to come from the Fed at its 20 March meeting, with a 61.9% probability, according to the CME FedWatch Tool.

US ten-year treasury yields spiked at 4.07% on the news but have since ticked down to 4.04%.

The dollar has risen against the pound, euro and yen on the news, up 0.17%, 0.26% and 0.36%, respectively, while the major US markets have also hit the green.

Managing director at Charles Schwab UK Richard Flynn noted while the uptick will be regarded as “unwelcome”, the move is not surprising and it remains to be seen whether this first increase will become a trend.

“Inflation figures in recent months have been promising and a single number is not a trend, but if today’s report is the start of an upward pattern, there is a good chance that the Fed will delay rate cuts until later than previously expected,” he said. “It looks like the market may have jumped the gun in pencilling in as many as six Federal Reserve rate cuts in 2024.”

UK inflation falls further than expected in November to 3.9%

Seema Shah, chief global strategist at Principal Asset Management, agreed the markets had been “a little overexcited around the timing of rate cuts” and noted that while the overall print was not necessarily an issue, shelter inflation could prove troublesome.

“These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%,” Shah explained. “Certainly, as long as shelter inflation remains stubbornly elevated, the Fed will keep pushing back at the idea of imminent rate cuts. Yet, while the market was probably overenthusiastic in its initial expectations, the stars should finally align for Fed cuts – most likely around mid-year.”

Titan Asset Management CIO John Leiper added: “The holistic data set should not rock the boat too far off its existing course, with minimal impact on rate cut expectations. If anything, it reinforces the idea that ongoing disinflation is a process, taking March marginally off the table whilst boosting the probability of a June cut.”