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Posts tagged with: "PCECTPI"

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A healthy appetite for health care?

How supply and demand may affect the costs and consumption of health care services

Health care has improved considerably in the past couple of decades, in terms of both quality and access. Yet, with health care costs on the rise in recent years, it’s also a topic of many heated discussions. Supply factors could be behind the increase in costs for health care services, but would also have a negative impact on their demand. On the other hand, higher demand for health care services would increase both the price and quantity consumed.

With FRED’s personal consumption expenditures price index data, we use the graph above to show the ratio of the price index for health care services to the overall price index for all goods and services in the economy. (The base year is set to 1999.) We can see that health care services are about 10 percent more expensive today, relative to all other goods and services, than they were 18 years ago.

The graph below shows, in billions of chained 2009 dollars, the amount spent on health care as a share of total consumption spending. (It’s important to keep in mind that the series displayed here mute the effect of changes in the price levels, as prices are “fixed” to the levels in 2009.) We can see an increasing trend for the past 18 years, indicating that the amount of health care consumed, as a share of total expenditures, has also been rising. This also implies that consumer spending on health care has been increasing more than consumer spending on other types of goods.

These graphs suggest that some demand factors could be behind the increased cost of health care, as both the price and the consumption of health care services, relative to other components of consumption, have increased. Some possible demand factors could be related to longer life spans, the demand for newer and more expensive procedures, and so on. Our analysis here is stylized, but further research should look at this issue more closely to try to illuminate the supply and demand factors behind the rising cost of health care.

How these graphs were created: For the first graph, search for “Personal Consumption Expenditures: Services: Health care (chain-type price index)” and select the quarterly, seasonally adjusted series. From the “Edit Graph” section, under “Units,” select “Index (Scale value to 100 for chosen date)” and set the date to 1999-01-01. Then use the “Add Line” option to add the quarterly and seasonally adjusted series for “Personal Consumption Expenditures (chain-type price index).” Apply the same adjustment to set the index to 100 for 1999-01-01. Then apply the formula a/b. Set the starting date for the graph to 1999-01-01. For the second graph, search for “Real Personal Consumption Expenditures: Services: Health care” and select the quarterly, seasonally adjusted series. Then, from the “Edit Graph” section, use the “Add Line” option to search for “Real Personal Consumption Expenditures,” quarterly, seasonally adjusted. Then apply the formula a/b.

Suggested by Maximiliano Dvorkin and Asha Bharadwaj.

View on FRED, series used in this post: DHLCRG3Q086SBEA, DHLCRX1Q020SBEA, PCEC96, PCECTPI

The value(s) of the minimum wage

The minimum wage, which has been in the news recently, seems to be part of two related but slightly different concerns. One is earnings inequality, which a higher minimum wage could potentially reduce. The other is poverty, which a higher minimum wage could also potentially reduce by helping a low-income worker afford a basic basket of goods. Putting aside the ability of the minimum wage to achieve either of these two goals (which economists actively debate), we still have these two different ways to measure the minimum wage and how it has evolved.

To quantify the purchasing power of the minimum wage, we can simply deflate the nominal value of the minimum wage. The red line shows the value of the federal minimum wage deflated by the PCE price index. We might be equally interested in whether the minimum wage pushes up the bottom of the wage distribution: How the minimum wage affects wage inequality is related to where it lands in the wage distribution. The blue line shows the fraction of hourly workers whose wages are at or below the minimum wage. This measures the value of the minimum wage by showing how many workers are directly affected by it.

The red line shows the minimum wage drifting up and down as its nominal value is eroded by inflation and as it is legislatively adjusted. The blue line shows it drifting downward consistently for the whole period as it fails to keep up with the growth in wages of most of the distribution.

How this graph was created: Search for “percent paid minimum wage” and add the annual series to the graph. Add the second series to the graph by searching for “federal minimum wage” and adding it as series 2. Then add “Personal Consumption Expenditures: Chain-type Price Index” by selecting “Modify existing series 2.” Finally, use the “Create your own data transformation” to apply the formula 100*a/b. (You need to multiply by 100 as the PCE index is normalized at 100.)

Suggested by David Wiczer.

View on FRED, series used in this post: FEDMINNFRWG, LEU0203127200A, PCECTPI

The many flavors of inflation

Inflation is the rate of growth of prices. But which prices? It all depends. Above, we have four popular measures of inflation for different slices of the economy. The consumer price index (CPI) looks at a typical U.S. consumer’s basket of goods and evaluates its price over time. The producer price index (PPI) looks at the cost of inputs into the production process. The GDP deflator considers all goods that are part of GDP, which excludes imports and includes exports (the opposite of CPI and PPI). Finally, the personal consumption expenditures (PCE) price index uses a continuously changing basket of goods that is the basis for the private consumption component of GDP. The graph shows similar trends for these series over the past 10 years, except that the PPI is much more volatile. Use the slider to look at other years, where the pattern holds.

And there’s more. Each of these inflation indicators can be broken down into more-specific versions. In FRED, you can find many subsets of data in our new release tables for CPI, PPI, GDP deflator, and PCE price index. A popular version of the CPI is the one that excludes food and energy, two highly volatile components with strong seasonal fluctuations. Some people use this version of CPI when they want to track “core inflation.” FRED recently added two new subsets of price information as well: One is an experimental dataset that calculates the CPI for those over 62 years of age, and the other is compiled by State Street and computes an index from prices posted on websites. The graph below contains these three price indexes, plus the CPI from the above graph. As expected, the CPI excluding food and energy is more stable. It is perhaps a surprise that inflation for website prices (the State Street index) is fluctuating so much, which could mean that goods offered online have special characteristics.

For more on inflation, take a look at these educational resources from the St. Louis Fed:

How these graphs were created: Start from a series page, modify the graph to show the units “Percent Change From Year Ago,” and then add the other series through the search feature within the form. Note that the units of these series will be automatically converted to percent change as you add them. For the bottom graph, you need to be sure to undo this conversion for the State Street index, as it is already expressed in percent change, and then apply the data transformation a*12 to this last series, as the original is a monthly inflation rate.

Suggested by Christian Zimmermann

View on FRED, series used in this post: CPIAUCSL, CPIEALL, CPILFESL, GDPDEF, PCECTPI, PPIACO, USINFL


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