(Reuters) – U.S. bond funds attracted their biggest weekly inflow in 18 months in the seven days to Jan. 4 on signs of cooling inflation that boosted hopes the Federal Reserve might scale back the size of its interest rate hikes.

Refinitiv Lipper data showed U.S. bond funds attracted a net $10.52 billion worth of purchases, the biggest weekly inflow since late June 2021.

Data released on Thursday showed U.S. consumer prices unexpectedly fell for the first time in more than 2-1/2 years in December amid declining costs for gasoline and other goods, suggesting that inflation was now on a sustained downward trend.

U.S. taxable bond funds received $8.8 billion, the biggest weekly inflow since late June 2021, while municipal bond funds attracted a net $1.74 billion.

Investors purchased U.S. short/intermediate investment-grade funds of $3.63 billion in their most extensive weekly net buying since Jan 2022, while high-yield, general domestic taxable fixed income, and government bond funds received $2.35 billion, $1.82 billion and $927 million, respectively.

Outflows from equity funds, meanwhile, dropped to an eight-week low of $2.01 billion.

U.S. growth and value funds remained out of favour, with net selling worth about $4 billion and $757 million, respectively.

However, some sectoral funds observed buying interest, with investors purchasing industrials, financials, and materials sector funds worth net $1.13 billion, $477 million and $435 million, respectively.

Meanwhile, money market funds recorded $17.22 billion in outflows after two weeks of inflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Conor Humphries)