US consumer spending fell in December, suggesting the economy lost speed heading into the new year amid snarled supply chains and raging Covid-19 infections.

Meanwhile, annual inflation increased at a pace last seen in the early 1980s.

The Commerce Department said today that consumer spending, which accounts for more than two-thirds of US economic activity, dropped 0.6% last month after gaining 0.4% in November.

Economists polled by Reuters had forecast consumer spending declining 0.6%.

The US economy grew at a 6.9% annualised rate last quarter, accelerating from the three months from July to September's 2.3% pace.

That boosted growth in 2021 to 5.7%, the strongest since 1984. The economy contracted 3.4% in 2020.

US consumer spending dropped, likely the result of Americans starting their Thanksgiving and Christmas shopping in October for fear of empty shelves at stores because of rampant shortages of goods, including motor vehicles.

Skyrocketing coronavirus infections driven by the Omicron variant also reduced traffic to places like restaurants and bars, as well as other high contact venues.

The shortages due to overstretched supply chains kept inflation elevated last month.

The personal consumption expenditures (PCE) price index increased 0.4% after rising 0.6% in November. In the 12 months to December, the PCE price index increased 5.8%.

That was the largest advance since 1982 and followed a 5.7% year-on-year increase in November.

Inflation is running way above the Federal Reserve's flexible 2% target. The Fed on Wednesday said it was likely to raise interest rates in March.