Shownotes Transcript
Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and today I'm jumping in to quickly address the recent inflation report. To grab the links and resources for this episode, just head over to youstaywealthy.com forward slash 149. So as you might have already seen, the March CPI report, the March inflation report was released this week and the year over year annual inflation rate jumped to a four decade high of eight and a half percent.
As a reminder, these CPI reports, these inflation reports, they come out monthly and they report the prior month's number, which is then consolidated with the previous 12 months of reports to arrive at that headline inflation rate that you see in the media. That's the eight and a half percent number that I just referenced. That number is referencing the inflation rate for the time period March 2021 to March 2022.
The actual CPI, the actual inflation rate for the month of March, which is often buried in these news articles and hard to find, was 1.2%. And for some perspective, the CPI for February of this year was 0.8% and January was 0.6%. So inflation has certainly jumped recently as anticipated.
One report estimated that U.S. households are spending an extra $327 per month due to the recent spike in inflation. And while this is the biggest monthly jump in prices since September of 2005 and the biggest year-over-year jump since 1981…
There are some positives that we can pull out of this report. For example, if you strip out food and energy from the March report, inflation is actually slowing. And yes, food and energy are things that we all need to pay for in our daily life, but they're also more volatile. Their prices are more volatile. In other words, their prices tend to fluctuate and these big monthly swings don't typically stick around for the long term.
On this note, chief economist at Ernst & Young said this week that given the pop in gasoline prices here in March, these numbers are likely to represent something of a peak. While U.S. consumers are likely more impacted by food and energy costs, the Fed is more focused on prices that are sticky. The measurement of price stickiness is often referred to as core inflation, and core inflation excludes food and energy prices.
In March, core inflation rose 0.3%, which was actually lower than February, which rose by 0.5%. So because core inflation seems to be slowing, at least for now, the Fed may be motivated to back off a bit and cool its aggressive plan to combat inflation. In fact, U.S. government bond yields fell on Tuesday of this week due to these tentative signs of easing inflation pressures.
In case you're wondering, the sectors that helped slow down core inflation this last month include used cars and commodities, with their prices being down 3.8% and 0.4% respectively. New vehicle prices were basically flat, as were prescription drugs, medical equipment, and medical supplies.
While there does seem to be some optimism in the air at the moment, we need to pay close attention to service sector prices and wages, which both continue to gather momentum. For example, rent and other housing expenses, as you might be feeling right now, are increasing more rapidly.
And wages are up sharply as well. This is pushing costs up for employers, which might force those employers, those businesses to continue to raise prices and pass those higher costs onto us. The consumer will likely need to see this momentum cool for everyone to really feel like they can take a deep breath and feel like inflation is under control.
Of course, all of this leads to the big question, which is, OK, what should we then as retirement savers and investors do in response? And this is why I try to stay away from current events and things that we don't have control over, because taking action and doing something based on them isn't prudent.
But these are historic events that we're living in, and it just feels odd not to bring them to the surface and discuss. And as for what to do in response, I think all of this is just a good reminder as to why we take our money out from underneath our mattress and invest it in the first place. Next week, I have a friend and popular finance author, Nick Maggiuli on the show. And like all of us here, Nick loves using data and evidence to make investing decisions. In fact, Nick is a data scientist who works in wealth management, which is quite rare.
Anyhow, Nick has a new book out, and in it he shares that if inflation is 4%, it only takes 17 years for your money or your purchasing power to be cut in half.
If it's up just a little bit more, if inflation is 5%, it only takes 14 years to cut your purchasing power in half. Now, for those in the working world, your wages are hopefully growing and increasing at a similar rate as inflation. But for those in retirement, that's not the case. You don't have the benefit of earning higher wages. Instead, you have to invest wisely and you have to invest for the long term in order for your hard-earned money to keep pace with rising prices.
Thank you for watching.
There is no one size fits all answer here and how you behave, how you respond to the current environment depends on you, your needs, your goals, and your financial plan. Remember, the recent inflation report should not influence changes to your investments. Your investments should only change if your investment policy statement changes and your investment policy statement should only change if your financial plan changes.
Next week, we'll chat more with Nick about investing in high inflationary environments, not to encourage you to go out and make investment changes, but to give you knowledge so that you can continue to make educated decisions and avoid making costly mistakes. We also talk about why you shouldn't wait to quote buy the dip as well as Nick's really cool actionable formula that you can use to invest during market meltdowns. We had a really good chat and I'm looking forward to sharing it with you.
Until then, you can grab the links from today's episode by going to youstaywealthy.com forward slash 149. Thank you as always for listening and I will see you back here next week.
