By Dean Baker
The overall Consumer Price Index (CPI) rose 0.3 percent in November, compared to a 0.2 percent increase in the core index. The main factor in the difference was a 1.1 percent jump in the energy commodities index. Health insurance costs, which rose 1.5 percent in November, were also a major factor in inflation for the month. Over the last year, the overall CPI is up 2.1 percent, while the core index is up 2.3 percent.
There continues to be little evidence of any acceleration of the inflation rate. The annualized rate comparing the last three months (September, October, November) with the prior three months (June, July, August) for the overall CPI was 2.0 percent. The annualized rate for the core CPI for the same periods was 2.4 percent.
While the inflation in the core index does not appear to be accelerating, there does seem to be some change in the drivers of core inflation. The shelter component was by far the largest contributor to core inflation over the last several years; however, this is getting to be less the case. The core index, excluding shelter, rose by 1.6 percent over the last year and has risen at a 2.1 percent rate comparing the last three months with the prior three months.
There is some slowing in rental inflation in recent months. This is best shown in the owners’ equivalent rent index (this index excludes utilities), which has risen at a 2.8 percent annual rate comparing the last three months with the prior three months. By contrast, inflation in the medical care index is accelerating rapidly. It rose by 4.2 percent over the last year and was increasing at a 6.5 percent annual rate comparing the last three months with the prior three months.
The big factors driving the medical care index are hospital services and health care insurance. The index for hospital services rose 0.3 percent in November and is up 3.3 percent over the last year. The index for health care insurance rose 1.5 percent in November and is up 20.2 percent over the last year. Health care insurance by itself has added more than 0.3 percentage points to the core inflation rate over the last year. (This index measures the administrative costs and profits of insurers, not premiums.)
Inflation for other items in the CPI continues to be well-contained. New vehicle prices fell 0.1 percent in November and are down 0.1 percent for the year. Used vehicle prices rose 0.6 percent in the month but are down 0.4 percent over the last year. Apparel prices rose 0.1 percent in November but are down 1.6 percent over the year.
Prices for food at home rose 0.1 percent in November and are up 2.0 percent over the last year. The index for food away from home rose 0.2 percent in November and is up 3.2 percent over the last year.
Prescription drug prices fell 0.1 percent for the month and are up 0.5 percent over the last year. It is important to remember that this index bears little relationship to what people pay for drugs, both because it doesn’t reflect changes in insurance co-pays and it only measures the change in the price of existing drugs, not the prices of new drugs that might replace them.
College tuition costs rose 0.1 percent in November and are up 1.9 percent over the last year. Inflation in auto insurance, which had been a major problem sector, continues to be well under control. The index fell by 0.2 percent in the month and is down 0.2 percent for the year. Airfares fell 0.9 percent in November and are up 2.0 percent for the year. Intercity bus fares, which are a very small part of the CPI, rose 9.8 percent in November and are up 28.0 percent over the last year.
Overall, this report again shows that inflation is well-contained. The most striking feature is that rental inflation, at least at a national level, appears to be slowing. However, it is being replaced by a pickup in medical care inflation, driven primarily by rising hospital costs and the soaring costs for health care insurance.