Tuesday's Scoop: Inflated☀️

Hey friend - lots of good cost of living data today.

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Here’s what you need to know today to inform your work, spending, and investments…

1. Inflation picked up in February thanks to rising gas prices.

2. Wages aren’t keeping up with rising living costs.

3. More Americans are pulling from their retirement savings early.

Inflation Rate: +3.2% (YoY), +0.4% (MoM)
^{Policymakers aim for 2% YoY inflation.}

Inflation accelerated in February, driven mainly by gas prices and rent. The Bureau of Labor Statistics’ Consumer Price Index rose 0.4% after rising 0.3% in January. Over sixty percent of last month’s increase in living expenses came from higher shelter costs and energy prices, which rose 0.4% and 2.3%, respectively. Overall, living costs are still 3.2% higher than a year ago. Excluding volatile food and gas prices, so-called core inflation rose 0.4% in February, up 3.8% over the past year. Policymakers think 2% annual inflation is the ideal rate.

While both rent and gas prices are substantial components of our everyday spending, economists aren’t too worried about the shelter part. Government home pricing statistics are always a little stale and use funky calculations. More real-time indicators have shown that home and rent prices are rising much more slowly or decreasing in most areas. Remember: lower inflation doesn’t mean lower prices. Inflation is the rate of change. Lower inflation means things are getting more expensive but less quickly.

Besides shelter and gas, the numbers were more encouraging. Food prices didn't change for the first time in months. New cars, home furnishings, medical services, and drugs got a little cheaper. However, airfares, apparel, and car insurance prices kept climbing.

Wages aren’t keeping up with the cost of living, despite some gains last year. The Labor Department reported average weekly earnings after accounting for inflation stayed flat in February after falling by -0.4 % in January. That means our income buys less stuff because the cost of living is inflating faster than our wages are rising. Over the past year, real average weekly earnings have risen only 0.5% after falling -1.7% the year before.

More Americans than ever have started dipping into their retirement savings to deal with financial emergencies. Vanguard, which administers 401(k) retirement investments for nearly five million people, reported a record 3.6% of savers withdrew from their 401(k)s in 2023. That’s up from a previous record of 2.8% in 2022 and above the pre-pandemic average of 2%. Roughly 40% of people who requested emergency distributions did so to avoid foreclosure on their homes. As an indication of how financially adjacent many Americans are to homelessness, three-quarters of the distributions totaled $5,000 or less.

The Market: ⬆️ +1.1%
S&P 500: 5,175.27
1Mo: +35% | 1Yr: +34% | 5Yr: +83%

The market soared to a new record high on Tuesday as investors celebrated more AI enthusiasm driven by cloud giant Oracle's financial report Monday night. Everyone's brushing off the high inflation for February driven by gas prices and rent, assuming it won’t scare policymakers much.