Starting with the October consumer price index, the Bureau of Labor Statistics (BLS) is changing how it estimates health insurance costs in a way that might increase inflation measures in the US. This new computation, which had been driving down overall inflation for the past year, is expected to increase headline CPI by reducing time lags and volatility in the index. This computation could also raise a narrower subset of services inflation that excludes energy and housing. Despite this, according to economists, the Federal Reserve is expected to disregard these changes as they don’t factor into the construction of their chosen inflation gauge, the PCE price index. However, with health insurance costs at a near six-year low, yet predicted to rise 5.4% on average next year, this change in methodology could make reducing inflation to the Fed’s target more challenging.
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[Source: Bloomberg, November 13th, 2023]