One of the biggest drivers of inflation slowed massively in February

• The Producer Price Index rose 0.8% in February, slowing from January's 1.2% leap.
• The index tracks input costs for businesses and is a popular forward indicator for US inflation.

Data out last week showed inflation hitting fresh 40-year highs in February, but a new report shows some of the key factors lifting prices cooling more than expected.

The Producer Price Index rose 0.8% last month, the Bureau of Labor Statistics announced Tuesday. That came in below the median forecast for a 0.9% gain from economists surveyed by Bloomberg. It also showed the month-over-month pace slowing significantly from January's 1.2% uptick.

PPI rose 10% on a year-over-year basis, edging just slightly higher from the January print.

The index tracks a collection of businesses' input costs ranging from raw materials to equipment. That makes it a closely watched forward indicator of broad inflation, as higher input costs are typically passed on to consumers through higher selling prices. And while the February print still shows PPI at a historically elevated level, the smaller monthly gain hints companies could soon face less pressure from higher costs.

Core PPI offered an even more encouraging signal. The measure, which excludes volatile food, energy, and trade services prices, rose just 0.2% in February, falling well short of the anticipated 1% increase. That also marked a huge slowdown from January's 0.8% gain and the smallest one-month increase in core PPI since December 2020.

Services saw PPI inflation hold flat through February, meaning goods-producing businesses were the only ones to see higher input costs. That's a promising sign for the economy, as the majority of the inflation problem has already come from goods firms. Economists were growing increasingly worried that service-sector inflation would catch up and exacerbate price growth through 2022.

Soaring energy prices contributed the most to broad PPI, with prices in the category leaping 8.2% through February. Food prices followed with a 1.9% jump.

The cooler PPI reading comes just days after the Consumer Price Index — one of the top measures of US inflation — showed prices surging 7.9% in the year through February. That marked an acceleration from the pace seen one month prior and the fastest year-over-year inflation since January 1982.

Inflation is still running red-hot, and the Russia-Ukraine conflict stands to only boost prices further in the coming weeks. Yet the latest PPI numbers hint some price pressures are easing, and that business costs might hit their peak in early 2022.