RALEIGH – Some good news in the fight against inflation came out early Friday – but whether it will slowdown interest rate hikes from the Federal Reserve remains to be seen.

Friday’s report from the Commerce Department showed that consumer prices rose 0.3% from January to February, down from a 0.6% increase from December to January. Measured year-over-year, prices rose 5%, slower than the 5.3% annual increase in January.

“The Federal Reserve’s preferred inflation measure – the personal consumption expenditures price index – came in lower in February, both on a year-to-year basis and on a month-to-month basis.  Year-over-year the rate [excluding food and energy] was 4.6%,” N.C. State economist Dr. Mike Walden told WRAL TechWire. “The Fed likes this measure better than the CPI because it accounts for changes in what consumers are buying.  This means that when buyers switch from more expensive items to less expensive items, the personal consumption price index accounts for this, whereas the CPI does not.”

But what will the impact of the data be?

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“The immediate question is whether this good news on inflation will motivate the Fed to stop pushing down on the brake – that is – increasing interest rates, particularly in light of recent banking issues,” Walden said. “No one knows for sure, but my “guess” is NO – we will continue to see interest rate hikes in the months ahead.”

Excluding volatile food and energy prices, so-called core inflation rose 0.3% from January and 4.6% from a year earlier. Both were slowdowns from the previous month. The Fed is believed to pay particular attention to the core measure as a gauge of underlying inflation pressures.

The report also showed that consumer spending rose 0.2% from January to February, a drop from a hefty 2% increase a month earlier.

Taken as a whole, Friday’s figures show that inflation pressures, though easing gradually, still maintain a grip on the economy. The Fed has raised its benchmark rate nine times since March of last year in a strenuous drive to tame inflation, which hit a four-decade high in mid-2022.

Job openings remain plentiful, hiring is strong, layoffs are still low and the unemployment rate is barely above a half-century low. A result has been upward pressure on wages, which have contributed to inflationary pressures. Even after having slowed, consumer prices are still posting year-over-year increases well above the Fed’s 2% target. Earlier this month, the Labor Department said its consumer price index rose 0.4% from January to February and 6% from February 2022.

The Fed’s policymaking has been complicated by the tumult that erupted in the financial system after the collapse this month of Silicon Valley Bank and New York-based Signature — the second- and third-biggest bank failures in U.S. history. The central bank now must consider the risk that its continuing efforts to cool inflation through ever-higher interest rates could further destabilize the banking system.

At a news conference last week, Fed Chair Jerome Powell acknowledged that the uncertainties now overhanging small and midsize banks will likely cause tighter lending conditions. If banks do restrict lending in the coming months, Powell noted, it would probably slow the economy and perhaps act as the equivalent of a Fed rate hike.

Phil Levy, chief economist at the supply chain consultancy Flexport, noted that at 4.6%, the report’s measure of year-over-year core inflation was still as high in February as it had been in December, suggesting that inflationary pressures are persistent and that the Fed still has work to do.

“You look at this report and think, we’ve got to keep applying the brakes,″ Levy said. ”The question is how much of March’s banking turmoil has already applied the brakes for them.”