The Bureau of Labor Statistics (BLS) recently announced that the U.S. consumer price index (CPI) rose by 8.3% over last year (between April 2021 and April 2022), coming down from an 8.5% increase in March. However, economic experts previously predicted the CPI to increase by 8.1% over the past year. This discrepancy suggests that the CPI’s deceleration is going to be slower than expected. On a month-over-month basis, the broadest measure of CPI increased by 0.3% in April, compared to a 1.2% rise in March.
By measuring costs for various goods and services, the CPI reflects inflation trends and highlights whether prices for everyday items will increase. The annual inflation rate moderated for the first time in months, but another closely watched measure actually accelerated.
In other words, the CPI’s growth has slowed – but still remains high.
Here’s a breakdown of the most significant goods and services that contributed to the CPI measurement for April, according to the BLS:
- Air travel – Airline costs rose sharply by 18.6%, representing the largest single-month increase recorded since 1963.
- Vehicles – Used vehicle prices fell by 0.4% since last month, but new vehicle prices rose by 1.1%. Prices for these items jumped by 22.7% and 13.2% over the past year, respectively.
- Food – The food index rose by 0.9% in the past month, while the food-at-home index increased by 1%.
- Gasoline – Overall energy prices fell by 2.7% since last month, largely driven by gasoline costs dropping by 6.1%.
A decline in gasoline prices was partially responsible for the slight moderation in April’s overall inflation rate. Unfortunately, that’s likely not enough to comfort many Americans whose budgets have already been strained by spiking fuel costs over the past year.
Healthcare Price Inflation
Inflation in the healthcare sector has long outpaced general, economy-wide inflation. This can be seen clearly by comparing Overall Inflation with Hospital Services and Medical Care Services in the chart below by the American Enterprise Institute, which uses data straight from the BLS.
Will the trend of healthcare price inflation outpacing the rest of the economy continue in a new world of high single-digit inflation? It is difficult to say.
Corey Rhyan, a Senior Analyst of health economics and policy at Altarum, reminds us that healthcare pricing takes time to adjust because of the way most prices are determined: Through multi-year contracts between insurance companies and hospitals. This accounts for why inflation hasn’t happened to healthcare the way it has already to other types of goods and services. In an April 2022 CNN article, Corey explained, “There’s just not a lot of flexibility for [healthcare] prices to change in the near term.”
The not-so-near term is another story. In January 2022 analysis by the Washington Post, Corey remarked, “Looking into the future is hard. But what I would say is that – assuming that the same kind of pressures that are causing prices in the economy to go up maintain – there’s no reason to think that those pressures wouldn’t also exist for healthcare.”
What we do know is that hospitals, like most other employers in the current labor market, are dealing with rising salary expectations from their workforce. A May 2022 BenefitsPro story cited that nurse salaries at HCA, a for-profit hospital system headquartered in Nashville, TN, were up 9% in June 2021. As a result, HCA is looking to “raise prices by up to 15%.” This story of increased labor costs seems to be playing out similarly across most hospitals in the U.S. in the wake of the COVID-19 pandemic.
How much of the price increase that self-funded employers and insurance carriers will absorb is unclear. However, with rising material costs (due to medical supply chain issues) and escalating labor costs, it seems fairly unavoidable that higher healthcare prices are on the way. Unfortunately, this will translate indirectly into even higher insurance premiums for employees and families at a time when most people have had their budgets stretched thin.
To rein in current inflation levels and to combat expectations for future price level rises, the Federal Reserve (Fed) has and may continue to raise interest rates through 2023. Economists are monitoring these trends closely for signs of a recession.
It’s unclear when Americans may experience relief from soaring inflation rates. Individuals and businesses should stay tuned for more developments from the Fed.
In the meantime, reach out to us for additional resources on navigating economic uncertainty – particularly with regard to your employee benefits – amid this period of historically high inflation.