Tuesday's Scoop: Setback 🌤️

Hey friend - want an easy way to help us out? Click the link below to check out today’s sponsored newsletter.

Every click supports Share Scoops and keeps these emails free!

Here’s what you need to know today…

1. Inflation picked up in January.

2. Wages haven’t caught up to the cost of living yet.

3. Corporate profits are up.

S&P 500: 4,953.17
1Mo: +4% | 1Yr: +20% | 5Yr: +78%

The market tumbled today after the big inflation report. Living costs started rising again last month more than expected. That leaves investors worried that policymakers won't lower borrowing costs anytime soon.

Living costs jumped unexpectedly last month. The Bureau of Labor Statistics' Consumer Price Index (CPI) increased by 0.3% in January after rising by 0.2% in December and November. Stuff generally costs 3.1% more than it did a year ago. Prices at the pump dropped, and food costs jumped. Higher home prices and rental costs are still the most significant inflators, accounting for more than two-thirds of the month’s inflation, but government home pricing statistics are always a little stale and funky. More real-time indicators have shown a steep slowdown in nationwide home and rent price increases. Besides shelter, the biggest areas of inflation this past year have been car insurance (+20%), recreation (+3%), personal care (+5%), and medical care (+1%).

Wages haven’t caught up with the cost of living yet. The Labor Department reported average weekly earnings after accounting for inflation declined -0.3% 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 are down -0.1% after falling -1.4% the year before.

Corporate profits are up. We’re most of the way through fourth-quarter corporate financial reports, and the past week’s reports have been better than the start of the reporting season. Roughly 75% of companies in the S&P 500 have reported better profits than expected, which is about average. It’s looking like corporate profits rose 3% in the final quarter of 2023, the second consecutive quarter of year-over-year growth. Much of the profits have come from cost-cutting. Sales growth is below average, only about 4%.

(These links only work for 24 hours while the story is live.)

View company rankings based on your votes▶️

What is the CPI, and why is it so important?

The Consumer Price Index (CPI) is one of the main ways economists track inflation. Inflation is the rate at which things get more expensive. The CPI looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month. The rate of change is inflation.

One important thing to know: inflation is most often quoted as an annual number, like "inflation rose 3.2% in October." In periods where inflation is changing rapidly, the monthly rates of change may be more informative than the annual rates. If prices rose by 0.6% in one month and 0.4% in the next, inflation declined, regardless of the change over the prior twelve months. The annual number helps us remember the pain we've experienced, but monthly numbers help us understand what's happening today.

Prices rarely go down. It's normal for things to get more expensive. You'll never be able to buy a Coke for a quarter again, but that's okay. Low inflation (~1-2% per year, 0.0-0.2% per month) is standard and almost unnoticeable. High inflation, like following the pandemic, with prices of essential goods going up nearly 7-10% per year, is a problem. It's unmanageable, especially if our incomes aren't rising in tandem. Low inflation, where incomes keep up or outpace rising living costs, is the goal for economic policy, not zero or negative inflation.