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There's more than just energy nudging inflation higher in October

Anjalee Khemlani
Senior Reporter
Prescriptions are filled at the Rock Canyon pharmacy in Provo, Utah, U.S., May 9, 2019. REUTERS/George Frey

Rising consumer prices in October were largely driven by energy prices, but two other health-related inflation factors may bear watching in the future.

On Wednesday, the Labor Department reported that the consumer price index logged a 0.4% gain last month, with core prices up 0.2%. Yet underneath the numbers, the inexorable rise of health care costs — such as a 1.4% pop in hospital visits and a 1% rise in prescription drugs — also placed upward pressure on prices, according to analysts.

To be certain, those gains could be temporary, given that some health costs can be volatile. However, resurgent drug prices came as an unwelcome surprise to industry experts, and may be a harbinger of things to come if they are sustained.

“Overall the medical care commodities have been very weak in last couple of years, after some very strong increases before,” an analyst for UBS told Yahoo Finance.

Meanwhile, the October figures showed that health insurance — which is based on retained earnings of health insurers, not price changes in premiums — also saw an increase.

“Health insurance is increasing vastly faster...and that’s kind of weird in that we don’t see that rate of increase in other medical insurance numbers,” the analyst said. “From the employer cost index, it doesn’t have medical costs or health cost numbers that quickly.”

In the past 12 months, health insurance has surged at an annual rate of 20%. That eye-popping figure is largely due to a technical change by the Labor Department in how they record price changes, with the new method addressing criticism that the figures didn’t capture a full-enough picture of health inflation.

“It’s hard to get a good gauge of health care prices, because so much of this is done behind closed doors,” the analyst said. “Consumers don’t pay directly for a lot of this. It’s a really non-transparent area of inflation, that’s really complex.”

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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