Inflation drops to zero in July due to falling gas prices

Consumer prices were unchanged in July, as plunging prices for gasoline dragged the Consumer Price Index down to zero. Core inflation, which excludes energy and food, rose only 0.3%, below what analysts expected.

Driving the news: The Labor Department reported that overall consumer prices rose 0% last month, and are up 8.5% over the past year. That compares to a 9.1% year-over-year reported in June.

Why it matters: Falling gasoline prices are clearly giving American consumers some inflation relief, and the broader inflation picture was more favorable in July than economists had expected.

By the numbers: Gasoline prices fell 7.7% in July, dragging down headline inflation. Other items with falling prices included used cars and trucks (-0.4%) and airfares (down 7.8%).

  • But rents kept rising, a major factor in stubbornly high underlying inflation. Renters faced a 0.7% rise in costs.

What’s next: The Federal Reserve has indicated it intends to keep raising interest rates until there is clear evidence inflation is waning. After two straight months of extremely hot inflation readings, this report will be welcome news.

$1.7 trillion U.S. spending bill would not stoke inflation: Moody’s

Dive Brief:

  • The $1.7 trillion “social infrastructure” legislation passed by the House and now before the Senate would spur growth, expand employment and boost productivity with limited inflationary impact, according to Moody’s Investors Service.
  • The spending “would occur over 10 years, include significant revenue-raising offsets and would likely only start to flow into the economy later in 2022 at a time when inflationary pressures from disruptions to global supply chains and U.S. labor supply will likely have diminished,” Moody’s Vice President-Senior Analyst Rebecca Karnovitz said
  • “Investments in childcare, education and workforce development have the potential to boost labor force participation and increase productivity over the medium and longer term,” she said. While the Senate will likely insist on amendments, the Build Back Better (BBB) bill currently would invest $555 billion in clean energy and “climate resilience” and $585 billion in childcare, universal prekindergarten and paid family leave.

Dive Insight:

CFOs concerned about rising prices and the risk of a wage-price spiral have found sympathy from some lawmakers who warn that the $5.7 trillion in spending Congress has already approved during the pandemic will further stoke inflation.

“Inflation is hammering working families across America,” Senate Minority Leader Mitch McConnell told the chamber last week. The Kentucky Republican called BBB a “socialist wish list” and an inflationary “taxing and spending spree.”

Some Democrats — including Sens. Kyrsten Sinema of Arizona and Joe Manchin of West Virginia — have cautioned that excessive spending could push up prices and worsen the fiscal outlook.

Sinema and Manchin have said that they want less costly legislation. With Democrats holding the smallest possible Senate majority, support from the two senators is essential for final passage of the bill.

“I have been concerned about high levels of spending that are not targeted or are not efficient and effective,” Sinema told the Washington Post on Nov. 18 while noting rising inflation.

“The threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse,” Manchin said on Twitter this month after the Labor Department reported that consumer prices rose 6.2% in October on an annual basis.

CFOs face even higher price gains for wholesale goods. The producer price index for final demand, a measure of what suppliers charge, soared 8.6% in October from the prior year, according to the Labor Department. That was a record jump in a series of data first published in 2010.

The Moody’s analysis suggests that concerns about the impact of BBB on inflation and the U.S. fiscal outlook may be overblown.

“We expect the spending package to have a limited impact on inflation,” Moody’s said.

Referring to the U.S. credit outlook, Moody’s said, “we expect the legislation to have only a small effect on the sovereign’s fiscal position, given that the spending would be spread over a decade and the revenue-raising measures would help offset the impact on federal budget deficits.”

The Congressional Budget Office estimates that the House version of BBB would push up fiscal deficits by $367 billion over a 10-year period.

Yet the estimate excludes about $200 billion in revenue that would come from a provision in the bill funding tougher tax enforcement and collection, Moody’s said.

“Estimates of the bill’s impact on the deficit are likely to shift in accordance with provisions that may be stripped from the Senate’s final version of the legislation,” according to Moody’s.

If Economists Chose the Health Care System

If Economists Chose the Health Care System - YouTube

Health economists study the economic determinants of health. They also analyze how health care resources are utilized and allocated, and how health care policies and quality of care can be improved. In this episode, we discuss what exactly a healthcare system would look like if these professionals were calling all the shots.

How the psychology of a $4.99 price tag might influence who undergoes heart surgery

How the psychology of a $4.99 price tag might influence who undergoes heart surgery

Balloon heart

Health economists aren’t generally known for their humor. There’s something about Medicaid that’s just deeply unfunny. Make a joke, and the punch line may well be deadly. As one quip goes: What do affordable health care and sarcasm have in common? Most Americans just don’t get it.

So it might come as a surprise that, over the last few years, a team of economists in Boston, New York, and Porto Alegre, Brazil, began to ponder a wisecrack of a research question: How is a hospital like a used car lot?

Predictably, they weren’t kidding. They knew, from a 2012 study of 22 million transactions, that a slight shift in an old clunker’s mileage could significantly change how much a buyer is willing to pay for it. An odometer just above 10,000 miles entailed an irrational reduction in price.

“A car with 9,999 miles is basically the same as a car with 10,001 miles, but the mind may perceive that the 9,999-mile car is in the nine thousands,” explained Dr. Anupam Bapu Jena, an associate professor of health care policy and medicine at Harvard Medical School.

Now, he and his colleagues wanted to see whether that sort of thinking — a big decision based on a single piddling digit — might be taking place in the hospital, when doctors figure out whether an older heart attack patient should get bypass surgery.

The results, published Wednesday in the New England Journal of Medicine, aren’t funny. Among thousands of Medicare recipients admitted to the hospital with heart attacks, 7% of those who would turn 80 in a few weeks got the operation, while 5.3% of those who were just past that milestone birthday did, even though their conditions were similar. Meanwhile, the researchers didn’t see that sort of discrepancy between patients just shy of their 77th, 78th, 79th, 81st, 82nd, or 83rd birthdays and those just past them.

To the researchers, it’s a sign that the fallacy seen in the used car market is also at play in the clinic. In both cases, people are often right to be wary of higher numbers. More miles entail more wear and tear. The older you get, the likelier it is that an operation’s risks outweigh the benefits. Yet to arbitrarily — and perhaps, unknowingly — fixate on the threshold at which patients pass from their 70s into their 80s seems like an example of what’s called the “left-digit bias” — our tendency to pay more attention to the digit we read first, which explains why a corner store might shave a price down from $5 to $4.99.

“Studies like this are really to show physicians, ‘Here’s a common mistake or error that people make,’” said Andrew Olenski, an economics Ph.D. student at Columbia and the paper’s first author. “This is not to say, ‘You should now be giving a lot more bypass surgeries to 80-year-olds than you would have.”

Yet Dr. Ruth Benson, a vascular surgeon at the University of Birmingham, in England, who was not involved in the study, cautioned that this sort of correlational research can’t tell us what causes such disparities or what the implications are. To her, it’s “a snapshot that raises more questions than answers.”

It’s hardly surprising that doctors might make choices shaped by unconscious bias. We all do. We think memorable anecdotes are representative. We give too much credence to evidence that fits our beliefs and discount everything else. Those same fallacies, famously described by economist Daniel Kahneman and psychologist Amos Tversky, creep into the highly trained thinking of physicians, too.

As Dr. Silvia Mamede, associate professor at the Institute of Medical Education Research in Rotterdam, put it, it’s easy enough for a physician’s mind to snag on some salient feature in a patient’s case — a mother who had tuberculosis, say — and allow that to shape the ensuing thoughts and questions, or to let a supervisor’s hypothesis influence the interpretation of a suite of symptoms.

In 2017, for instance, one of the authors of the new study, Columbia University’s Stephen Coussens, had found that people arriving at the emergency room were much more likely to get certain blood tests to look for heart disease if they’d just turned 40 then if they were enjoying the last weeks of being 39.

To Mamede, that earlier study fit the general pattern of medical decision-making research. “Most studies are on bias in diagnosis,” she said. It’s an easier situation in which to understand potential fallacies because there’s often a right answer that can be confirmed in the lab. “But with treatment,” Mamede went on, “it’s difficult to say.” Even with guidelines, the variables are often so complex that the correct treatment is a matter of debate.

That makes the new study stand out — but also raises questions.

It’s unclear what the findings mean for heart attack patients who are about to turn or have just turned 80. As Dr. Donald Redelmeier, a professor of medicine at the University of Toronto, explained, “The study does not answer the question about which rate is right, i.e. whether there’s too much surgery going on beforehand or too little afterward.”

The researchers did find that 17.7% of those who were about to turn 80 died within 30 days of being hospitalized, while the rate was 19.8% for those who’d just passed their birthdays — but that difference can’t necessarily be explained by the discrepancies in the percentage of patients getting surgery. To Jena, unconscious biases are more likely to come into play not for the healthiest or the most frail — not for the 65-year-old at death’s door or for the healthy-as-an-ox 82-year-old marathon runner — but for those borderline cases in which it’s hard to make a call.

The procedure is deeply invasive. It involves putting a patient on a machine that acts as an external heart and lungs. A surgeon slits the skin of the chest and breaks through the flat of the sternum with a motorized saw, allowing the operating team to take a snip of a vessel from elsewhere in the body and sew it in as a detour around a blocked artery so that blood can keep flowing normally. For some patients, medications might be a better option; for others, it might be advisable to try threading in a little balloon to break up the blockage through a tiny keyhole incision in the arm or the groin, and then to put in a metal stent to prop open the vessel.

Even among cardiac surgeons at Jena’s own hospital, who weren’t involved in the research, the reaction to these findings changed from person to person. To Dr. George Tolis Jr., surgical director of coronary bypass surgery at Massachusetts General Hospital, the analysis didn’t seem detailed enough to say whether this was something he needed to worry about. He wondered, for example, whether those patients who didn’t get surgery had even been referred to a surgeon.

“A surgeon, in order to turn down a patient, needs to know about the patient. Did these surgeons know about these patients and either unconsciously or consciously turn them down? That’s a key missing element here,” he said, adding: “Before raising flags of concern, we have to understand what the source of the initial decision is.”

Meanwhile, Dr. Thoralf Sundt, chief of cardiac surgery at the same hospital, saw the research as a useful reminder — even if to him the findings do not show an act of age discrimination. “We need to understand ourselves better and understand these subtle biases so we can control for them,” he said. “It’s not sinister. It’s human. We’re all built this way.”




Every American family basically pays an $8,000 ‘poll tax’ under the U.S. health system, top economists say

Princeton economist Anne Case speaks about “deaths of despair” in the United States at the American Economic Association's annual meeting in San Diego this past weekend. (Heather Long/The Washington Post)

America’s sky-high health-care costs are so far above what people pay in other countries that they are the equivalent of a hefty tax, Princeton University economists Anne Case and Angus Deaton say. They are surprised Americans aren’t revolting against these taxes.

“A few people are getting very rich at the expense of the rest of us,” Case said at conference in San Diego on Saturday. The U.S. health-care system is “like a tribute to a foreign power, but we’re doing it to ourselves.”

The U.S. health-care system is the most expensive in the world, costing about $1 trillion more per year than the next-most-expensive system — Switzerland’s. That means U.S. households pay an extra $8,000 per year, compared with what Swiss families pay. Case and Deaton view this extra cost as a “poll tax,” meaning it is levied on every individual regardless of their ability to pay. (Most Americans think of a poll tax as money people once had to pay to register to vote, but “polle” was an archaic German word for “head.” The idea behind a poll tax is that it falls on every head.)

Despite paying $8,000 more a year than anyone else, American families do not have better health outcomes, the economists argue. Life expectancy in the United States is lower than in Europe.

“We can brag we have the most expensive health care. We can also now brag that it delivers the worst health of any rich country,” Case said.

Case and Deaton, a Nobel Prize winner in economics, made the critical remarks about U.S. health care during a talk at the American Economic Association’s annual meeting, where thousands of economists gather to discuss the health of the U.S. economy and their latest research on what’s working and what’s not.

The two economists have risen to prominence in recent years for their work on America’s “deaths of despair.” They discovered Americans between the ages of 25 and 64 have been committing suicide, overdosing on opioids or dying from alcohol-related problems like liver disease at skyrocketing rates since 2000. These “deaths of despair” have been especially large among white Americans without college degrees as job options have rapidly declined for them.

Their forthcoming book, Deaths of Despair and the Future of Capitalism,” includes a scathing chapter examining how the U.S. health-care system has played a key role in these deaths. The authors call out pharmaceutical companies, hospitals, device manufacturers and doctors for their roles in driving up costs and creating the opioid epidemic.

In the research looking at the taxing nature of the U.S. health-care system compared with others, Deaton is especially critical of U.S. doctors, pointing out that 16 percent of people in the top 1 percent of income earners are physicians, according to research by Williams College professor Jon Bakija and others.

“We have half as many physicians per head as most European countries, yet they get paid two times as much, on average,” Deaton said in an interview on the sidelines of the AEA conference. “Physicians are a giant rent-seeking conspiracy that’s taking money away from the rest of us, and yet everybody loves physicians. You can’t touch them.”

As calls grow among the 2020 presidential candidates to overhaul America’s health-care system, Case and Deaton have been careful not to endorse a particular policy.

“It’s the waste that we would really like to see disappear,” Deaton said.

After looking at other health systems around the world that deliver better health outcomes, the academics say it’s clear that two things need to happen in the United States: Everyone needs to be in the health system (via insurance or a government-run system like Medicare-for-all), and there must be cost controls, including price caps on drugs and government decisions not to cover some procedures.

The economists say they understand it will be difficult to alter the health-care system, with so many powerful interests lobbying to keep it intact. They pointed to the practice of “surprise billing,” where someone is taken to a hospital — even an “in network” hospital covered by their insurance — but they end up getting a large bill because a doctor or specialist who sees them at the hospital might be considered out of network.

Surprise billing has been widely criticized by people across the political spectrum, yet a bipartisan push in Congress to curb it was killed at the end of last year after lobbying pressure.

“We believe in capitalism, and we think it needs to be put back on the rails,” Case said.