Price rises slowed again in February as the annual rate of inflation eased but the report has been overshadowed by a banking crisis ahead of next week’s meeting of the Federal Reserve. Prices in February were 6% higher than a year ago, down from an annual rate of 6.4% in January and significantly lower than the 9.1% peak of inflation seen in June. Between January and February, prices rose 0.4% as prices increased in sectors including housing and food. While February saw the continuation of a downward trend in the 12-month inflation rate, the core prices – which excludes volatile food and energy prices – increased by 0.5% in February compared with a 0.4% monthly gain in January. The housing sector is seeing the stickiest price increases and contributes to over 70% of the overall inflation increase. Housing prices rose 0.8% between January and February and 8.1% over last year. The food industry also saw high price increases, reaching 10.2% inflation over the last year, though monthly increases have been slowly falling and once soaring egg prices have started to fall. Meanwhile, the energy sector saw decreases that helped drive down the 12-month inflation rate. “For the Fed, the monthly consumer price index (CPI) – which measures the price of a basket of goods and services – has been the main data point in its decisions to raise interest rates over the last year. Since March of last year, interest rates have gone from zero to 4.5% to 4.75%, the highest level since 2007. Over the last week, the Fed’s calculations have changed dramatically. The fall of the $200bn Silicon Valley Bank, and the ongoing tumultuous aftermath, has created a formidable obstacle to the dogged fight of the Fed chair, Jerome Powell, dogged fight to bring down inflation by raising rates. Last week, Powell told Congress that the US still has a “long way to go” in reducing inflation, implying that not only would the Fed continue to increase interest rates in the coming months, but it would do so aggressively. Powell said he was unhappy with January’s small decrease in inflation that was also coupled with data that showed a strong labor market and robust consumer spending. Just a day later, SVB announced that it needed to raise capital after selling securities at a loss, triggering a textbook-case bank run where the bank’s customers, many who are venture capitalists, started rapidly withdrawing deposits. Financial regulators shut down the bank and took control of its deposits on Friday. Repercussions were quickly seen over the weekend as customers started worrying about the state of other banks. Regulators closed Signature Bank, a crypto-focused bank based in New York, on Sunday. Government officials, including Powell, the treasury secretary, Janet Yellen, and the Federal Deposit Insurance Corporation (FDIC) chair, Martin Gruenberg, announced a backstop measure on Sunday that will ensure depositors at SVB and Signature Bank will still have access to their money. Still, contagion effects were seen on Monday when shares of US and European banks started to sell off sharply. Joe Biden in a statement encouraged calm over the situation saying, “Americans can have confidence that the banking system is safe.” Inflation figures have largely been the main calculus in the Fed’s decision to increase interest rates, but SVB’s collapse asks a big question of the Fed: how far is it willing to go to tame inflation? Though the year-over-year inflation rate is continuing to show a downward trend, the rate remains far from the Fed’s target rate of 2%, something Powell has emphasized concern over. “We’re strongly committed to returning inflation to our 2% goal,” Powell said last Tuesday. “We will stay the course until the job is done.” But while SVB executives and venture capitalists, who have advocated for softer banking regulations but led the run on SVB, have been facing criticism, the bank’s woes ultimately started with rising interest rates. The bank invested in bonds, which have an inverse relationship to interest rates, thus when interest rates started rising, the value of the bank’s bonds fell. Combine that with the sobering of the tech boom that was seen during the pandemic, and which has now tapered off into massive layoffs at major tech firms, things had not been looking good for SVB for a while. Economists are predicting that because of the SVB debacle, the Fed will not touch interest rates, a move which would probably rock markets. But the decision is ultimately left up to Powell and the board. The Fed’s next board meeting, where it will decide on interest rates, will take place 21 and 22 March.