Prices for Health Goods Rallying

As the economy slowly crawls its way back towards growth, inflation is well under control. However, healthcare inflation is rearing its head. Table 1 presents data from the February release of the Producer Price Index.

Over the last twelve months through January, producer prices increased by zilch, and actually decreased since last December. Prices of goods for final demand actually dropped 3.7 percent over the year. Pharmaceutical preparations, however, increased by 7.3 percent, and other healthcare goods also had higher inflation than other goods for final demand (which, I hate to state, also weakens the argument that the medical-device excise tax is having as negative an effect as the industry claims).20150219 PPI


Prices for intermediate goods tell a similar story, with prices for medicinal, botanical, and biological chemicals experiencing higher price growth than other processed chemicals.

Producer price inflation for services is more of a mixed bag, with only prices for nursing-home care showing high relative inflation. Until recently, I had been somewhat satisfied that the pattern of healthcare job growth (more in ambulatory settings than hospitals) might keep a lid on prices of health services. Data for producer prices show that this has been the case.

(The Altarum Institute has also released its February updates of health spending and prices, which show strong growth in health spending of 5 percent in 2014 and high relative price inflation.)

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