PPI: Health Price Inflation Low, But Not Low Enough

This morning’s Producer Price Index came in unexpectedly low, decreasing 0.4 percent versus an expected slight increase of 0.1 percent. Except for nursing home care, which increased 0.9 percent, producer prices for medical goods and services decreased or increased very modestly. Of 15 medical goods and services measured in the PPI, four actually experienced price decreases over the month. This number includes pharmaceutical preparations. However, because overall PPI actually deflated significantly, all medical prices increased at a faster rate than the overall PPI (Table 1).

Over the last twelve months, prices for all but one medical category (medical lab and diagnostic imaging services) have increased faster than overall PPI. At 6.3 percent (versus just 0.3 percent for final demand), producer prices for pharmaceutical preparations stand out. However, the monthly PPI suggests this trend might be breaking down. Nursing homes, for which producer prices increased 2.5 percent might replace drug makers as a target of politicians’ campaigns against health costs, but they have a long way to go.