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While the costs of some things are coming down, a lot of other prices are climbing


Television sets got cheaper last month, but the streaming services many people watch on those TVs - well, those got more expensive. That, in a nutshell, is the story of inflation these days. While the cost of some things are leveling off or even coming down, a lot of other prices continue to climb. The Federal Reserve has been trying to tame high inflation for a year now by raising interest rates. But the Fed also has to worry about the stability of the financial system following the collapse of two regional banks. That news could push inflation to the back burner when the Fed officials meet next week. NPR chief economics correspondent Scott Horsley joins us now. And, Scott, we got our regular monthly report card on inflation this morning. So tell us, how are things going?

SCOTT HORSLEY, BYLINE: Well, there is some good news at the supermarket, although you might have to squint to see it. Egg prices, which had skyrocketed, actually came down in February for the first time in five months. Grocery prices, overall, had their smallest monthly increase in two years, so that is an improvement. But food economist David Ortega of Michigan State University cautioned supermarket prices are still more than 10% higher than they were this time last year.

DAVID ORTEGA: We're seeing some improvements in the forces that are leading to price increases, but there's still a ways to go before we start to see substantial relief at the grocery store.

HORSLEY: And, of course, rising food costs fall especially hard on lower income shoppers, who devote more of their income to putting food on the table. Overall, inflation last month was down from January's figure, but prices are still climbing about three times as fast as the Federal Reserve would like.

SUMMERS: And why is that? What is driving these prices up?

HORSLEY: You know, it's a lot of different things. But while food inflation has slowed down, other prices seem to be picking up steam, especially services - things like going out to eat, staying in a hotel room, taking your dog to the vet. And you can't really blame those price hikes on snarled supply chains or Russia's invasion of Ukraine. Service costs are largely driven by the cost of workers and the wages paid to cooks and hotel housekeepers and vet techs. Economist Julia Coronado, who heads MacroPolicy Perspectives, says service inflation doesn't appear to be cooling off. It actually accelerated last month. And that's a big concern for the Federal Reserve.

JULIA CORONADO: That is sort of going the wrong direction. So I think that that's going to add to their nervousness about the possibility inflation proves stickier and harder to bring down from where we are.

HORSLEY: A week ago, Fed Chairman Jerome Powell warned that the central bank might have to raise interest rates higher and faster in order to get these stubborn service price hikes under control. Of course, that was before the collapse of Silicon Valley Bank and Signature Bank.

SUMMERS: So how do those bank failures affect the Fed's calculation?

HORSLEY: They could make the Fed more cautious about raising interest rates, at least at that next meeting, a week from tomorrow. Before the banks collapsed, the Fed was expected to raise interest rates by at least a quarter percentage point at that meeting and maybe as much as half a point. But those bank failures really rattled the larger financial system, and rising interest rates was a contributing factor in the collapse of Silicon Valley Bank. So in the wake of that, forecasters expect the Fed to go a little easier. The assumption is that a half-point interest rate hike is now off the table, and some forecasters think the central bank will skip the rate hike altogether.

Now, I will say, today betting markets have shifted a bit in the direction of the middle path. Oddsmakers pretty much expect the Fed to raise rates by a quarter point next week. I asked Julia Coronado if that's because the banking system is looking a little more stable today or because the details of this inflation report, particularly those rising service prices, look a little worse.

CORONADO: Maybe a little bit of both.

HORSLEY: So whatever the Fed decides to do next week, inflation is still too high, and barring a real meltdown of the financial sector, we're probably going to see higher interest rates.

SUMMERS: NPR's Scott Horsley, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.