By Arul Louis

New York, Jan 12 (IANS): The US annual inflation rate dropped in December to an annualised rate of 6.5 per cent, the lowest increase since October 2021, the Labour Statistics agency reported on Thursday.

As a measure of inflation, the consumer price index (CPI) increase last month was lower than the 7.1 per cent reported in November.

The Bureau of Labour Statistics said the drop was aided by the cooling of petrol prices which led to a decrease of the energy index by 4.5 per cent even as other components of the index rose.

It said: "The index for gasoline was by far the largest contributor to the monthly all items decrease".

However, the food index increased by 0.3 per cent over the month.

The US inflation rates are keenly watched by policymakers and the financial sectors around the world as they influence the US interest rates that can have a cascading effect on economies elsewhere.

While the slowing of inflation, which has been a factor in the Federal Reserve raising the interest rate to temper inflation, may be seen as a positive sign for the economy the overall picture is mixed.

Excluding food and energy, index for all other items rose 5.7 per cent over the last 12 months and this is the focus of the Federal Reserve in determining the course of interest rates adding a note of caution.

Greg McBride, chief financial analyst at Bankrate told CNBC that it was too early to determine if the inflation was under control.

"We've got to see sustained improvement over a period of months, and across an expanding range of goods and services," he told the outlet.

While the economy is at risk of a recession from the hikes in interest rates, more of them may be on the way, if at a slower pace.

Philadelphia Federal Reserve Bank President Patrick Harper said on Thursday that more hikes in the 0.25 per cent range were likely, but ruled out higher rises.