CEPR

May 10, 2019 (Prices Byte)

By Dean Baker

Health insurance prices have increased at a 17.9 percent annual rate over the last three months

Another jump in energy prices pushed the overall Consumer Price Index (CPI) up by 0.3 percent in April, bringing its increase over the last year to 2.0 percent. The core index increased by 0.1 percent for the third consecutive month, bringing its increase over the last year to 2.1 percent. Even this modest rise was driven primarily by shelter costs. The core, excluding shelter, was flat for the second consecutive month. This index has risen just 1.1 percent over the last year.

The big factor driving the rise in the overall CPI was a 2.9 percent jump in the energy index, which follows a 3.5 percent rise in March. This increase is partly attributable to the efforts by the Trump administration to prevent the sale of Iranian and Venezuelan oil on world markets and partly just a reversal of declines from last fall. Over the year energy prices have risen by just 1.7 percent.

Outside of energy, the only major factor driving inflation higher is rents. The rent proper index rose 0.4 percent in April, bringing its increase over the last year to 3.8 percent. The owner equivalent rent (OER) index, which is a truer measure of pure rent, since it excludes utilities, rose 0.3 percent in April, making its increase over the last year 3.4 percent.


While there had been some evidence of slowing in the rent indexes last year, this does not seem to be the case now. The OER index has risen at a 3.7 percent annual rate over the last three months (February, March, April) compared with the prior three months (November, December, January), while the rent proper index has risen at a 4.1 percent annual rate.

The more rapid growth in the rent indexes has coincided with a slowing of inflation elsewhere in the core. Excluding shelter, the core index has increased at just a 0.4 percent annual rate over the last three months.

Outside of the shelter, it is difficult to find inflationary pressures in the core index. The index for medical rose 0.3 percent, but is still up just 1.9 percent over the last year, slightly trailing the overall CPI. However, the index for health insurance, which measures just the administrative costs and profits of insurers, continues to soar. It rose by 1.5 percent in April, bringing its increase over the last year to 10.7 percent. Incredibly, health insurance prices seem to be rising more rapidly, with an annual rate of increase of 17.9 percent.

New vehicle prices rose 0.1 percent in April, while used vehicle prices fell 1.3 percent. They are up 1.2 percent and 0.8 percent, respectively, over the last year. Apparel prices fell 0.8 percent in April and are down 3.0 percent over the last year.

While the index for food consumed at home fell 0.5 percent in April and has risen just 0.7 percent over the last year, there has been a somewhat more rapid rise in the price of restaurant meals. This index rose 0.3 percent last month and is up 3.1 percent over the last year. This likely reflects rising wages in the sector due to minimum wage hikes and a tighter labor market.

The only other sector showing somewhat higher inflation is education. The education index rose 0.2 percent in April and is up 3.3 percent over the last year. The 3.9 percent rise in college tuition costs over the last year is the biggest factor in this rise.

Other areas that had shown inflation pressures in the past are not doing so now. Airline fares, which are hugely affected by energy prices, fell 0.1 percent in April and are down 1.8 percent over the last year. The price of car insurance fell 0.2 percent in April, the second consecutive decline. It is up just 1.4 percent over the last year.

Overall, this report shows that in spite of the low unemployment rate, inflation remains well contained. The core inflation rate shows no evidence of acceleration and remains slightly below the Fed’s target. Excluding shelter, which follows a different dynamic, inflation actually appears to be slowing slightly. It does not appear as though inflation will be a problem in the near future.