The U.S. central bank is forecasting three rate increases this year, the same number as in 2017.
The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.
Consumer price inflation accelerated to 5.21 percent from 4.88 percent in November.
That was the biggest advance in the so-called core CPI since January 2017 and followed a 0.1 per cent gain in November.
US producer prices fell for the first time in almost 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018.
Food costs edged up 0.2 percent in December and have increased a modest 1.6 percent over the past year.
For December 2017, the State Bank of India (SBI) had stated that the numbers are expected to remain at elevated level, adding, "We project CPI inflation to come in between 5.0-5.2%".
Paul Ashworth, chief US economist at Capital Economics, said the inflation report bolstered his view that the Fed will accelerate rate increases this year. The food inflation rose to 4.85% yoy in December 2017 compared to 4.42% yoy in November 2017.
The dollar briefly trimmed losses against a basket of currencies after the CPI data, but later slumped to a four-month low.
The yield for the 10-year benchmark note climbed to 2.583%, from 2.531%, while the 30-year bond yield was higher at 2.894%, versus 2.863%. The cost of both hospital and doctor visits increased 0.3 per cent.More news: SpaceX denies Falcon rocket caused secret Zuma mission failure
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The Index of Industrial Production (IIP) data published by the ministry of statistics and programme implementation (Mospi) shows that factory output had shot up to 25-month high of 8.4% in November after a tepid growth of 2% (revised from earlier 2.2%) in the month before.
The cost of motor vehicle insurance increased 0.6%.
Apparel prices, however, fell 0.5 per cent. Mining output grew at 1.1 per cent in November, sharply down from 8.1 per cent last year, while electricity recorded a growth of 3.9 per cent against 9.5 per cent a year ago.
But clothing prices fell for the fourth consecutive month, and airline fares fell 0.5% after a 2.4% drop in November.
Shelter costs rose 0.4 percent in the month, faster than usual, while medical care increased 0.3 percent and food was up 0.2 percent.
While vegetable prices likely dropped moderately last month, a pay revision in July previous year for government employees probably pushed up demand and inflation.
The output of primary goods grew by 3.2 per cent, while that of intermediate goods rose by 5.5 per cent.
Meanwhile, despite reports of healthy sales from some stores during the holiday shopping season, department store sales declined 1.1 percent from the prior month, while sporting goods stores fell 1.6 percent.
Sales last month were supported by a 1.2 percent jump in receipts at gardening and building material stores.
The for final demand slipped 0.1 percent last month. Consumer spending, which accounts for more than two-thirds of USA economic activity, increased at a 2.2 per cent annualised rate in the third quarter.