The Consumer Price Index rose 0.6 percent in December, while medical prices rose only 0.2 percent. This is the fifth month in a row we have enjoyed medical price relief in the CPI. Even prices of prescription drugs rose by only 0.3 percent. Prices of three components – medical equipment and supplies, dental services, and care of invalids and elderly at home even dropped. No category rose more than 0.1 percentage point more than all item CPI. Medical price inflation contributed only three percent of CPI for all items.
Over the last 12 months, however, medical prices have increased much more than non-medical prices: 3.9 percent versus 2.4 percent. Price changes for medical care contributed 13 percent of the overall increase in CPI.
See Figure I and Table I below the fold:
Many observers of medical prices decline to differentiate between nominal and real inflation. Because CPI is has been low until recently, even relatively moderate nominal price hikes for medical care are actually substantial real price hikes. More than six years after the Affordable Care Act was passed, consumers have not seen relief from high medical prices, which have increased over twice as much as the CPI less medical care since March 2010, the month President Obama signed the law.
We can only hope the last five months have established a new trend that will improve even more once Obamacare is repealed and replaced with a reform that allows more price competition.
Technical Note: Professor Christopher Conover explains why some scholars de-emphasize CPI and medical CPI as appropriate measures of inflation for health care, preferring another dataset, Personal Consumption Expenditures (PCE). There are very good reasons for such a conclusion. However, CPI comes out monthly. The PCE price index is updated only quarterly, and that is only for services. Prices for goods, such as drugs and medical devices, are updated only annually. Plus, consumers only really care about price increases they experience directly, not price increases borne by other economic actors.