The implacable US services sector outperformed in December. More importantly, price pressures accelerated sharply.

That’s according to the first of this week’s top-tier macro releases out of the US.

At 54.1, the ISM services headline improved from the prior month and printed marginally ahead of consensus, but the business activity gauge, at 58.2, jumped meaningfully, suggesting the biggest part of the world’s largest economy hit on most, if perhaps not all, cylinders during the holiday season.

The S&P Global headline for December was 56.8, a 33-month high. As the figure shows, contraction-territory prints are a rarity for either gauge since Q1 2023.

“Many industries noted that end-of-year and seasonal factors were helping drive business activity,” ISM’s Steve Miller said, adding that “some of the increased business activity seems to have been driven by preparation for demand in the new year, or risk management for impacts from ports strikes and potential tariffs.”

Disconcertingly, the prices paid gauge in the ISM release rose to a scorching-hot 64.4. The month-to-month increase was the most pronounced since January of last year, which some of you might recall marked the beginning of a three-month stretch defined by rekindled inflation.

As the figure shows, 64.4 counted as a near two-year high, not the best news if you’re the Fed and you’re concerned about stubborn services sector inflation. If you’re keeping track at home, prices paid by services firms have increased for 91 consecutive months, according to ISM’s measure.

That said, input cost pressures don’t necessarily translate into higher prices for consumers. “Input prices increased markedly, and at a pace that was faster than the pre-pandemic average,” S&P Global’s Chris Williamson remarked, adding that “a number of respondents mentioned higher shipping costs, while others reported wage pressures.” And yet, he suggested the pace of services inflation actually slipped “to the weakest since last February.”

The ISM employment subindex was basically unchanged at 51.4. The comparable gauge from the S&P Global survey suggested services firms expanded payrolls for the first time in five months in December.

All in all, it’s fair to argue that the Fed has reason to remain concerned about core inflation. At least to the extent the underlying trend is primarily a function of the goings-on in services.

Oh, and ISM’s Miller noted that although survey respondents expressed “general optimism across many industries, tariff concerns elicited the most panelist comments.”