Tuesday, February 14, 2017

PPI: Mixed News on Health Prices

January’s Producer Price Index rose 0.6 percent. However, prices for many health goods and services grew slowly, if at all. Nine of the 16 price indices for health goods and services grew slower than their benchmarks.* Prices for six of the categories of health goods and services deflated in absolute terms.

The outlier was pharmaceutical preparations for final demand, which increased by 1.1 percent (0.7 percentage points more than final demand services (less trade, transportation, and warehousing.) The largest decline (relative to its benchmark) was for prices of health and medical insurance for intermediate demand, which declined by 0.8 percentage points versus services for intermediate demand (less trade, transportation, and warehousing).

With respect to diagnosing whether health prices are under control, the January PPI is more mixed than December’s was. Nevertheless, although pharmaceutical prices stand out, most excess inflation is in health services, not goods.

See Table I below the fold:

Over the last twelve months, prices of 10 of the 16 health goods and services have increased slower than their benchmarks. Prices of X-Ray and electromedical equipment stand out, having shrunk 0.8 percent, an absolute decline of 2.9 percentage points versus final demand goods (less food and energy). Pharmaceutical preparations stand out on the high side, having increased 7.0 percent, or 4.9 percentage points more than final demand goods (less food and energy).

*The benchmarks are the core measurements under which the health measurements are found. That is, final demand goods less food and energy is the benchmark for the three measurements (pharmaceutical preparations, X-Ray and electromedical equipment, and medical, surgical, and personal aid devices) listed under that core measurement; final demand services less trade, transportation, and warehousing is the benchmark for the eight health measurements listed under that core measurement, et cetera.

**Dental care is dominated neither by government nor private insurance, so dental price increases are not explained by NCPA’s usual theory of health inflation. I addressed dental price increases in a previous article.

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