Activity in the U.S. services industry accelerated in December but brought with it a sharp rise in expectations for price increases as businesses grew concerned about the impact tariffs would have on inflation.

The Institute for Supply Management’s services index Tuesday posted a reading of 54.1%, representing the share of businesses expecting growth. That was up 2 percentage points from November and better than the Dow Jones survey of economists showing a consensus forecast of 53.4%.

Along with the better overall reading, the prices index jumped to 64.4%, an increase of 6.2 points or more than 10%. It was the first time the index had eclipsed 60% since January 2024, said Steve Miller, chair of ISM’s Business Survey Committee. The prices index hit its highest level since February 2023.

“There was general optimism expressed across many industries, but tariff concerns elicited the most panelist comments,” Miller said.

President-elect Donald Trump has vowed to enact sweeping tariffs after he takes office later this month. Trump on Monday denied a Washington Post report that he was considering a narrower, more targeted approach.

The ISM manufacturing survey for the month also reflected higher prices, with the index rising to 52.5%, up 2.2 points on the month.

Treasury yields, particularly at the longer-dated end of the curve, moved higher following the release. The benchmark 10-year note most recently yielded 4.68%, up .065 percentage point, or 6.5 basis points, on the session.

In the services survey, multiple respondents cited tariffs as a concern while noting a generally positive business climate wrapping up 2024.

“Seems to be a lot of uncertainty about tariffs and purchasing decisions. A lot of wait and see,” said one respondent in the transportation and warehousing industry.

“Generally optimistic that the incoming administration will positively affect regulatory, tax and energy policies that will spur economic improvement. We are concerned about tariff activity and are hoping for the best,” an information services industry manager reported.

The business activity index also moved higher, rising to 58.2%, an increase of 4.5 points.

Employment was little changed at 51.4%; in the ISM manufacturing survey, the index fell to 45.3%, a decline of 2.8 points. Any reading in the ISM surveys below 50% represents contraction.

Readings on inflation and employment conditions are critical for the Federal Reserve as it contemplates future moves in monetary policy. The central bank lowered its benchmark borrowing rate by a full percentage point from September through December in 2024 but is expected to move at a more cautious pace now as it evaluates incoming economic data.

A separate report Tuesday indicated that job openings nudged higher in November while fewer workers left their jobs.

The Labor Department’s Job Openings and Labor Turnover Survey showed available positions rising to 8.1 million, an increase of 259,000 for the month and higher than the 7.7 million estimate from Dow Jones. At the same time, quits fell to 3.06 million, a decline of 218,000.

The level of job openings to available workers held around 1.1 to 1.

Annual inflation in the euro zone rose for a third straight month to reach 2.4% in December, statistics agency Eurostat said Tuesday.

The reading was in line with the forecast of economists polled by Reuters and marked an increase from a revised 2.2% print in November. Core inflation held at 2.7% for a fourth straight month, also meeting economists’ expectations, while services inflation nudged up to 4% from 3.9%.

Headline inflation was widely expected to accelerate after hitting a low of 1.7% in September, as base effects from lower energy prices fade. The full extent of increases in the reading — along with persistence in services and core inflation — will be closely watched by the European Central Bank, which markets currently expect to cut interest rates from 3% to 2% across several trims this year.

The pace of price rises in the euro zone’s largest economy, Germany, hit a higher-than-expected 2.9% in December, according to figures published separately this week. Inflation in France meanwhile came in at 1.8% last month, below a Reuters analyst poll forecasting a 1.9% print.

The euro extended early-morning gains against the U.S. dollar following the print, trading 0.37% higher at $1.0428 at 10:13 a.m. in London. Traders are assessing whether the euro could decline to parity with the greenback this year, if the U.S. Federal Reserve proves significantly more hawkish than the ECB.

Haig Bathgate, director of Callanish Capital, told CNBC’s “Squawk Box Europe” that ECB policymakers would not be overly concerned by a hotter monthly inflation reading, as long as it was broadly in line with expectations.

“There’s now a lot more predictability in a lot of the data series we’re seeing… the direction of travel of rates [lower] in Europe is much more predictable than say, the U.K.,” Bathgate said Tuesday.

While markets have frontloaded pricing for rate cuts toward the start of the year, Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, said the stickiness of services inflation meant that the ECB was “likely to keep cutting interest rates only slowly even as the economic outlook remains poor.”

“Most important for the monetary policy outlook is that core inflation was unchanged at 2.7% for the fourth consecutive month… This won’t stop the ECB from cutting interest rates further,” Allen-Reynolds said in a note.

“The high level of services inflation is partly due to temporary effects that should fade this year. Meanwhile, the labor market has loosened, wage growth is slowing and the growth outlook is weak.”

The euro zone economy grew by 0.4% in the third quarter, but economists warn that political instability, ongoing manufacturing weakness and the potential for escalating trade tensions under the incoming administration of U.S. President-elect Donald Trump have clouded the outlook for 2025.

President-elect Donald Trump is considering a plan that still would apply tariffs to all nations but narrow the focus to a select set of goods and services, according to a Washington Post report.

The new approach to tariffs likely wouldn’t be as powerful as Trump’s earlier ideas but still would cause major changes to global commerce, the paper said, citing people familiar with Trump’s thinking.

The report comes amid concerns that the incoming president’s insistence on imposing universal tariffs of 10% or 20% and specifically targeting China and Mexico would cause another spike in inflation.

During Trump’s first term, duties on a broad range of imports did little to raise prices broadly and in fact were kept in place when Joe Biden took over as president. However, economists worry that conditions are different now and aggressive tariffs would have a greater impact.

The Post report said it’s still not clear which sectors would be affected by the plans, though early discussions are looking at various industrial metals, medical supplies and energy.

The U.S. is running a $74 billion monthly trade deficit that exploded during the Covid pandemic.