The consumer-price index—which measures what consumers pay for goods and services—rose 7% in December from the same month a year earlier, up from 6.8% in November. That marks the fastest pace in 40 years and the third straight month in which inflation exceeded 6%.

The Federal Reserve appears poised to lift interest rates as soon as March due to concerns over a tight labor market and elevated inflation. Fed Chairman

Jerome Powell

called high inflation a “severe threat” to a full economic recovery Tuesday and said the central bank was preparing to raise interest rates because the economy no longer needed emergency support.

Stocks have seen choppy trading this week as investors assess the potential impact of sooner-than-anticipated rate rises and await clarity on when inflation may peak.

“I do think the markets are believing that inflation is on the cusp of peaking,” said

Darrell Cronk,

chief investment officer for wealth and investment management at Wells Fargo.

When interest rates are low, investors tend to load up on risk assets such as stocks to generate returns. When inflation accelerates and policy makers raise rates, the value of companies’ future earnings drops and investors have more alternatives for places to make money. This particularly hurts technology stocks that promise expanding future profits. The Nasdaq Composite is down 3% so far in 2022, while the S&P 500 is down 1%.

Luca Paolini,

chief strategist at Pictet Asset Management, said he expected inflation to reach a peak this quarter, but is waiting to see if higher inflation weighs on profits in the coming earnings season. 

Real estate stocks led the S&P 500’s sectors in recent trading. Health care and energy lagged behind.

Among individual stocks, shares of

Biogen

dropped 8.7% after Medicare officials said they would cover its Alzheimer’s drug Aduhelm on the condition that patients were in clinical trials and had early-stage symptoms.

The yield on the benchmark 10-year Treasury note slipped to 1.736% Wednesday from 1.745% Tuesday, when the rally in government bond yields halted. Yields and prices move inversely. 

Overseas, the pan-continental Stoxx Europe 600 gained 0.6%.

Hong Kong-listed Chinese tech stocks like

JD.com

and Meituan jumped Wednesday. Analysts and investors said there was no clear catalyst. Hong Kong’s Hang Seng Index surged 2.8% and China’s Shanghai Composite rose 0.8%.

Japan’s Nikkei 225 and South Korea’s Kospi rallied 1.9% and 1.5%, respectively.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com