Over Time & Most of the Time
Monthly inflation reports are like mile markers on a long road trip. They are important for counting down to the next bathroom break, but each marker may be of little individual significance when charting cross country.
The latest CPI (consumer price index) report released this week showed that the broad basket of goods and services increased in price by 3.7% over the past 12 months. Calculated monthly, the increase from July to August was the largest since June 2022.
August's energy component of the CPI increased by 5.6% as gasoline prices surged around 10% month over month. You may see this at the pump as regular unleaded has increased to nearly $4 per gallon in Minnesota.
Let's go back three years to review how prices have changed from then to now.
Gasoline: up 73.3%
Home prices: up 37%
Food at home and away from home: up around 20%
Medical Care Services: up just 4.3%
We find total inflation over the past three years is around 17%. Keep in mind that everyone experiences inflation a bit differently, and depending on your lifestyle, you may have experienced more or less than 17% three-year inflation.
Checking in on markets: the S&P 500 stock index's 3-year return is up about 40%
That's a lot of numbers. What does it all mean? It means that during the recent 3-year period, the stock market has outpaced inflation. On average, stocks outperform inflation most of the time. It doesn't mean that outperformance has or will occur in all periods, just that it tends to. Holding stocks for the longer term, we believe, can be a good counter to inflation.
When we think about preserving and growing wealth, we must balance the constant tick-tick-tick of monthly data mile markers with the journey and destination.
Brooklyn, New York to San Diego is a 41-hour, 2,800-mile trek across the country. Interstate 40 runs through Ohio, Missouri, and New Mexico on this coast-to-coast adventure.
If the road trip is your retirement journey, then we can think of short-term reports like stock market results, inflation figures, and interest rates as the mile markers along the way. They can give you a sense of how far you've come.
Just as we shouldn't judge the success of a cross-country trip by a single roadside attraction, we don't evaluate our long-term financial health metrics solely by short-term market or inflation numbers. The key is keeping your eyes on the road and your hands on the wheel, adjusting your 'route' as needed to reach your destination.
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