U.S. service sector activity picked up in December, but an index measuring input prices surged to a near two-year high, indicating rising inflation, in line with the Federal Reserve's forecast for a smaller rate cut this year. The Institute for Supply Management (ISM) said on Tuesday that its non-manufacturing PMI rose to 54.1 last month from 52.1 in November, beating market expectations of 53.3, due to strong demand. So-called hard data, including consumer spending, suggested the U.S. economy performed solidly in the fourth quarter. ISM data last week showed that the manufacturing PMI rose to a nine-month high in December. The new orders index rose to 54.2 from 53.7 in November. The business activity index rose to 58.2 from 53.7 the previous month. As demand rises, so do input costs. The non-manufacturing price index jumped to 64.4 from 58.2 in November, the highest level since February 2023. The employment index was 51.4, little changed.