Here's something you probably thought you'd never see. The costs for medical care commodities, like medications, medical equipment and supplies, are .1% lower than last year. Medical care services rose 2.6%, but that's better than the annual 3.6% rise we've seen consistently during the past few years.
The main reason for Obamacare was to lower health care costs, and therefore government spending on Medicare. Could it be working? Thanks to regulations promoting coordinated care, fewer Medicare patients are being re-admitted within 30 days for complications. Other hospitals are avoiding unnecessary test and procedures because they now share in the savings. Third, hospital Medicare payments are being reduced if there's poor performance. In DC, Kaiser Permanente has already announced it's dropping its premiums 19.4%. (Source: USA Today, Administration Lowered Premiums, July 29, 2013; White House Blog, ACA Implementation Reduces Health Care Costs, July 29, 2013; Washington Post, Health Care Law Lowers Costs for Small Businesses, July 26, 2013)
There's other trends buried in the Consumer Price Index report. Overall, prices are 2% higher than last year, and .2% higher than last month. Most of that is due to higher gas prices, which I warned you about last month. Prices at the pump are a chilling 5.2% higher than last July, and a solid 1% higher than in June. That's a result of higher oil prices in June winding through the distribution system.
Food prices are starting to inch up, thanks to high oil and gas prices that drive up transportation costs. Prices at the grocery store are 1% higher than last year, while restaurant prices are up 2.1%.
So, isn't this dangerously close to the Federal Reserve's inflation target of 2%? Doesn't this mean the Fed will begin tapering soon? No, because the Fed looks at the core inflation rate, which strips out these volatile food and energy prices. Since last year, the prices on everything else only rose 1.7%. As result, now investors are worried about deflation, rather than inflation. That's because a little bit of inflation is a good thing. When people expect prices to rise in the future, they are more likely to buy now to avoid the cost increase. A moderate 2% rate of inflation is just enough to spur demand, and promote health economic growth. (Source: Bureau of Labor Statistics, Consumer Price Index, August 15, 2013)
How It Affects You
The low threat of inflation, and the possible emergence of deflation, means the Fed will probably not begin tapering until December or later. In other words, it will continue to boost economic growth with Quantitative Easing. Nevertheless, bond buyers are anticipating the Fed's moves, and have already sent interest rates on the 10-year Treasury to 2.7%.
As for lower health care costs, the best way to take advantage of them is to compare insurance plans on the health care exchanges. They don't officially open until October 1 (just six weeks away) but you can start to familiarize yourself now.
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