The US Labor Department said consumer prices rose 7 percent on-year in December 2021, the fastest rate since 1982, as supply snarls and energy costs were compounded by surging demand from Americans returning to normal life.

However, the reading was in line with expectations and analysts pointed out that the increase from the previous month had slowed and was below forecasts, indicating that the rally may have peaked or was close to topping out.

Producer price figures later in the day will be closely followed for further clues.

US investors welcomed the news, with all three main indexes extending Tuesday's gains that were fanned by Federal Reserve boss Jerome Powell pledging to rein in prices but do his utmost to nurture the economic recovery.

Markets had endured a torrid start to the year, particularly after Fed minutes last week showed a much more hawkish tilt by policymakers that many feared could see the bank remove financial support too quickly.

But Powell's remarks and the latest data have soothed nerves considerably this week.

Still, there remains much debate on how many times the bank will hike interest rates and when it will begin to cut back on the vast bond holdings it has, which have helped keep borrowing costs in check.

Jack Janasiewicz, at Natixis Investment Managers Solutions, wrote: "March has all but made a rate by the Fed a foregone conclusion. June is not far behind either. But combine this with base effects [comparing with last year's high readings], COVID-related improvements in supply chains and labor markets, the Fed's tough talk on inflation, balance sheet management and some modest fiscal tightening and we very well could see inflation prints beginning to soften to a pace that some are not expecting."

He added: "There's a lot of hawkishness baked in at current levels. Maybe too much."

After Wednesday's rally, Asian equity markets fluctuated.

Hong Kong, Sydney, Wellington, Taipei, Jakarta and Manila rose, while Singapore, Bangkok and Mumbai were flat. 

Tokyo ended down 1 percent as a stronger yen weighed on exporters, with Shanghai and Seoul also off. London, Paris and Frankfurt all fell at the open.

But while the mood has improved on trading floors, there remain concerns that markets will not have an easy ride this year as the Fed removes the massive support that has helped drive a two-year rally and saw the economy through the pandemic.

"Inflation is going to be with us no matter if they increase rates, and the challenges [to] the economy here are just going to build on that," Shana Sissel, of Strategic Wealth Partners, told Bloomberg Television. 

"I am concerned that there is going to be quite a bit of volatility in the market and our economy is going to slow down considerably."

Oil prices edged down slightly but held most of Wednesday's advances that came on the back of data showing US stockpiles last week fell to their lowest level since 2018, lifting hopes for demand in the world's top economy.

Warren Patterson, of ING Groep NV, said: "Supply disruptions, uncertainty over OPEC spare capacity and waning concerns over Omicron have all proved bullish for prices. [The stockpile] numbers provided a further boost."

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