The Biggest Adjustment Of Inflation Ever


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But there won’t be an adjustment for the Fed-favored “core PCE” price index that will come out before the next Fed meeting.

Let’s just start with inflation in services today because nearly two-thirds of consumer spending ends up in services, so this is the biggie. And some extra-special stuff happened in the CPI for services in October. What would come today was discussed over the past weeks in the Wall Street Journal and elsewhere, and it wasn’t a surprise: a massive mega-adjustment by the Bureau of Labor Statistics in the CPI for health insurance. And today it came.

Everyone knows that the costs of health insurance didn’t plunge in October from September. But because of the periodic adjustment, the CPI for health insurance plunged 4.0% in October from September, a 6.1 percentage-point swing from September (+2.1%), according to data from the Bureau of Labor Statistics today. This was by far the biggest month-to-month plunge in the BLS data going back to 2005, and far outstripped the adjustments in prior periods:

The CPI for health insurance accounts for 0.9% in overall CPI and for 1.1% in the Core CPI. And the plunge today pushed down the overall index, and even more the core CPI and the services CPI.

Inflation in health insurance is difficult to figure because numerous factors change, not just the premium but also co-pays, deductibles, out-of-pocket maximums, what is covered and what isn’t covered, etc., and there are all kinds of insurance plans out there.

So the BLS uses a different method to estimate price changes, the “retained earnings method,” which the BLS explains here, and once a year or so, it has to adjust the index as more data become available.


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