How Inflation Changed in February 2023 (and What to Do Now)

By Dr. Sylvia Kwan

The numbers are here: In February 2023, inflation rose by 6.0% compared to this time last year.

That’s slightly lower than the 6.4% we saw in January, which means it’s gone down slightly on an annual basis. But that doesn’t tell the whole story. On a month-to-month basis (ie, February compared to January), core inflation (which doesn’t include food and fuel prices — more on that below) actually rose 0.5%, and that’s slightly higher than the month-to-month number last month (0.4%). This just goes to show that inflation is still proving stubborn, and with the collapse of Silicon Valley Bank putting pressure on the Federal Reserve to slow the rate hikes it’s been implementing to get inflation under control, we’ve probably got a ways to go until we’re back in 2% “normal” territory.

A line chart zig-zagging upward, with a calculator, stack of cash, and % sign floating around it. Illustration.

So what drove last month’s change in inflation, and what should you do with your money in times like these? Let’s break it down.

First: How is inflation measured?

Inflation is the upward creep of the prices of goods and services. It usually happens because the demand for goods and services is rising faster than companies can produce and supply them. That makes them more scarce, which makes them more valuable, which pushes prices up. When wages don’t rise to match, that creates a decrease in purchasing power. (Translation: Things cost more and you’re not making more, so you can’t buy as many things.)

Inflation is most often measured using a standard benchmark called the Consumer Price Index (CPI), which you might have heard of. The CPI is calculated by looking at a standard set (“basket”) of goods (food, medical care, clothing, etc) and averaging their change in price over time.

There’s also a measure called “core inflation,” which is basically all that stuff, minus food and energy prices. It can be easier to judge what’s really happening in the economy when you exclude them, because food and energy tend to be more volatile, driven by short-lived factors, and just overall less reflective of economic health.

And the last measure to know about is called Personal Consumption Expenditures (PCE). It’s a bit broader than the CPI and weighs some things like health care a bit more heavily. It’s also the measurement that the Federal Reserve considers the most when they make policy decisions.

What drove February 2023’s inflation numbers?

The good news first: Supply chain and rapid inflation woes (see: $9 eggs) seem to have mellowed out a bit, and prices on “durable” goods — things that people use for a long time, like cars and appliances — stayed about the same.

The meh news: The main factor in last month’s uptick was in rent and housing — which might be a good sign, given that experts have been predicting those prices will cool off a bit over the next few months.

But even when you cut out housing, the services sector — things like hotels, car insurance, health care, restaurants, even salons — also picked up in February (up 0.43%) compared to January (when it was up 0.27% compared to December), likely for the same reason they rose last month —a strong jobs market. (A good chunk of the service industry’s costs are employee wages, so when businesses need to raise wages to stay competitive, they’ll often raise prices to compensate.)

It’s the Federal Reserve’s job to manage inflation, and one of the main ways it can try to do that is by raising the federal funds rate. (Here’s an explainer on how that helps.) The Fed hiked rates seven times in 2022, at a pace we haven’t seen in decades, and once already this year (albeit more slowly). Unfortunately, this month’s inflation data seems to indicate that the process is going to take longer than people had hoped. Between the stickiness of inflation in services and the two bank collapses this month, policymakers have a bit of a conundrum on their hands re: next moves. They could continue raising rates — and risk more issues in the banking sector — but they also might pause or even reverse rate hikes in the coming months, depending on where they see the most potential to get things under control.

How should you manage your money right now?

It’s impossible to know what will happen in the future, especially right now, but here are some things to think about.

Don’t keep more than you need to in cash

This is something we say anyway — but when inflation is high, cash gets less valuable, so the advice becomes even more urgent. Here’s what we recommend always keeping in cash (as in, in an FDIC-insured bank account):

  • Money to pay your bills

  • Your emergency fund (three to six months’ worth of take-home pay)

  • Savings for short-term goals (things you’ll need money for in the next one to two years)

If you’re the kind of person who tips a little more toward “cautious” on the risk tolerance scale, you could consider adding a bit more to your emergency fund — if things are going to cost more later, your savings might not go quite as far.

But for the rest of your money, we typically recommend investing it.

Shop around for the best interest rates on savings

Higher federal interest rates lead to higher interest rates paid by savings accounts. If you have a large chunk of cash in the bank (like a complete emergency fund, for example), see if you can find a savings account paying more.

Keep investing regularly

If you’re investing for long-term goals (those more than a few years away), we’d probably recommend that you just keep doing what you’re doing. Every period of inflation is different, and in the past, it’s affected different types of investments in different ways (which is, after all, the point of having a diversified portfolio). 

We do know (and as we’ve seen this year) periods of economic uncertainty tend to make the markets nervous, which can lead to volatility. So we recommend using a technique called dollar-cost averaging, which means investing regularly, a little bit at a time, no matter what’s going on in the market. You’ll end up investing when markets are up and down in a way that evens out over time. It takes the timing guesswork out of it.

Plus, we don’t know how long higher inflation will last — there’s always a chance that it could slow sooner than experts expect. Either way, the longer your timeline, the less inflation is likely to impact your eventual bottom line.

(By the way, when you invest with Ellevest, we take hundreds of different economic scenarios — including ones like this — into account as we build your forecast.)

TL,DR: We don’t know how long this period of higher inflation will last. All we can do is try to make the best choices we can with the information we have — and adjust along the way.


© 2023 Ellevest, Inc. All Rights Reserved.

All opinions and views expressed by Ellevest are current as of the date of this writing, are for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

Information was obtained from third-party sources, which we believe to be reliable but are not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities, and should not be considered specific legal, investment, or tax advice.

The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.

Investing entails risk, including the possible loss of principal, and past performance is not predictive of future results.

Ellevest, Inc. is a SEC registered investment adviser. Membership fees and additional information can be found

A newsletter you’ll love

Get all the news, advice, and must-know info on women, money, and career.

Dr. Sylvia Kwan

Dr. Sylvia Kwan is the Chief Investment Officer of Ellevest. She researches and oversees Ellevest portfolios and develops the algorithms behind Ellevest’s investment recommendations.