Prices paid to U.S. producers rose in December by less than expected as two key drivers of inflation in 2021 – food and energy – declined from a month earlier, suggesting cost pressures are starting to settle back.

The producer price index for final demand increased 0.2 percent from the prior month and 9.7 percent from a year earlier, Labor Department data showed Thursday. The annual advance was the largest in figures back to 2010.

The median projections in a Bloomberg survey of economists called for a 0.4 percent increase from a month earlier and a 9.8 percent annual jump.

Excluding the volatile food and energy components, the PPI climbed 0.5 percent in December and was up 8.3 percent from a year earlier.

The December pullback reflected declines in the costs of gasoline and food. The prices of services increased from a month earlier, though more moderately. The figures suggest rapid inflation is poised to cool after a combination of materials shortages, limited labor and transportation bottlenecks sent prices soaring last year.

However, the omicron variant presents an upside risk over the short term to goods prices in the months ahead, as quarantines and illness prevent many from working.

A closely watched inflation gauge, the consumer price index, rose 7 percent last year, the most in nearly four decades, according to data out Wednesday. The monthly advance exceeded projections, setting the stage for the Federal Reserve to begin hiking interest rates as soon as March. Economists expect consumer inflation to moderate over 2022.

Producer prices excluding food, energy, and trade services – a measure often preferred by economists because it strips out the most volatile components – rose 0.4 percent from the prior month. Compared with a year earlier, the gauge increased 6.9 percent.

The latest Fed Beige Book assessment: “Wholesale and materials prices contributed to pricing pressures across a wide range of industries, spanning service providers and goods producers. Many contacts attributed the high cost of inputs to ongoing supply chain disruptions. Some Districts reported that transportation bottlenecks had stabilized in recent weeks, though procurement costs remained elevated.”

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, declined 0.3 percent in December, the first decrease since April 2020. Compared with a year earlier, the measure jumped 24.4 percent.

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