The June CPI and PPI numbers are encouraging, but there are still reasons for caution. The challenge is disentangling the underlying trend from the unwinding of idiosyncratic one-off factors.
Medical care services has been a persistent drag on inflation for the past year. It’s my understanding that the way this is measured lags significantly. Is there a more accurate way to track what is going on in this space? Or how it might be impacting overall inflation?
--Medical care services in the CPI includes health insurance, and this "price" is inferred based on the retained earnings reported by the major publicly-traded private insurers. That measure has a lot of inertia month-to-month and is also very volatile year-to-year, going from +30% to -30% during the past few years.
--Excluding insurance, medical care services in the CPI are based on out-of-pocket costs observed by patients rather than the prices charged by providers. The BEA prefers to look at the PPI for health care when calculating the PCE price index. They also have a different method for looking at insurance costs although whether it is more "accurate" depends on what you think it is trying to measure.
For what it's worth, excluding health care from the CPI (or just health insurance) does not change the overall picture that much, nor does the overall picture for PCE look that different with health care excluded.
Medical care services has been a persistent drag on inflation for the past year. It’s my understanding that the way this is measured lags significantly. Is there a more accurate way to track what is going on in this space? Or how it might be impacting overall inflation?
Two points:
--Medical care services in the CPI includes health insurance, and this "price" is inferred based on the retained earnings reported by the major publicly-traded private insurers. That measure has a lot of inertia month-to-month and is also very volatile year-to-year, going from +30% to -30% during the past few years.
--Excluding insurance, medical care services in the CPI are based on out-of-pocket costs observed by patients rather than the prices charged by providers. The BEA prefers to look at the PPI for health care when calculating the PCE price index. They also have a different method for looking at insurance costs although whether it is more "accurate" depends on what you think it is trying to measure.
For what it's worth, excluding health care from the CPI (or just health insurance) does not change the overall picture that much, nor does the overall picture for PCE look that different with health care excluded.