Inflation moderated notably in March as a decline in gas prices helped to pave the way for the slowest pickup in prices in nearly two years, providing relief for many American consumers and a positive talking point for President Biden.
The Consumer Price Index climbed 5 percent in the year through March, down from 6 percent in February. That marked the slowest pace since May 2021.
Still, the details of the report underlined that inflation retains concerning staying power under the surface: A so-called core index that aims to get a clearer sense of price trends by stripping out food and fuel costs, both of which can be volatile, picked up by 5.6 percent from a year earlier. That was up slightly from February’s 5.5 percent increase, and it marked the first acceleration in the yearly number since September.
The mixed signals in the fresh inflation data — which, taken as a whole, suggested that price increases are meaningfully moderating but the progress remains gradual — come at a challenging economic moment for the Federal Reserve. The central bank is the government’s main inflation fighter, and it has been trying to wrestle price increases back under control for slightly more than a year, raising interest rates to nearly 5 percent from near zero as recently as March 2022 to slow the economy and weigh down costs.
Officials are now assessing how their policy changes are working, and they are trying to gauge how much more they need to do to ensure that price increases come fully under control. Inflation has been slowing after peaking at about 9 percent last summer, but the process has been a slow one. It remains a long way back to the 2 percent inflation that was normal before the onset of the pandemic in 2020.
Uncertainty over how quickly and completely price increases will cool is being compounded by recent developments. A series of high-profile bank blowups last month could slow the economy, but it is unclear by how much. Some Fed officials are urging caution in light of the turmoil, even as others warn that the central bank should keep its foot on the economic brake and remain focused on its fight against rising prices.
The new data “solidifies the case for the Fed to do another hike in May, and to proceed cautiously from here,” said Blerina Uruci, chief U.S. economist at T. Rowe Price, later adding that “it will take time to bring inflation down.”
Fed officials target 2 percent inflation, which they define using a different index: the Personal Consumption Expenditures measure, which uses some data from the consumer price measure but is calculated differently and released a few weeks later. That measure has also been sharply elevated.
While Wednesday’s report showed an uptick in core inflation on an annual basis — one that economists had largely expected — Ms. Uruci said that it also offered some encouraging signs. The core inflation measure slowed slightly on a monthly basis, when the March figures were compared to those in February.
And a few important services prices, which the Fed is watching closely for a sense of whether price increases are poised to fade, cooled notably. Rent of primary residences picked up 0.5 percent compared to the prior month, down from 0.8 percent in the previous reading, for instance. Housing inflation broadly is expected to slow in 2023, and that appears to be starting to take hold.
“There are signs in the details to suggest we’re making some progress toward slowing inflation,” Ms. Uruci said. “It’s not where it needs to be, but it’s progress.”
But those hopeful signs do not mean that inflation will fade smoothly and rapidly. The slowdown in the overall index, for instance, may not last: A big chunk of the decline is owed to a drop in gas prices that may not be sustained.
And a few other indexes continued to show quick price increases, including new vehicles and hotel rooms.
As they try to bring inflation to heel, some central bankers have suggested that they may need to further raise interest rates.
The Fed’s latest estimates, released shortly after the collapse of Silicon Valley Bank and Signature Bank in March, suggested that officials could lift rates another quarter-point this year, to just above 5 percent. The central bank will announce its next policy decision on May 3.
On Tuesday, John C. Williams, the president of the Federal Reserve Bank of New York, said that the Fed had more work to do in bringing down price increases and suggested that the central bank’s March forecast for one more quarter-point rate move was still a “reasonable starting place.”
But Austan D. Goolsbee, the president of the Federal Reserve Bank of Chicago, suggested that recent bank failures could make it tougher for businesses and consumers to access credit, slowing the economy, stoking uncertainty and creating a “need to be cautious.”
“We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation,” Mr. Goolsbee said.
Higher interest rates have made it much more expensive to borrow money to buy a house or expand a business. That is slowing economic activity. As demand cools and the labor market softens, wage growth is also moderating.
That could help to pave the way for cooler inflation. When wages are climbing quickly, companies might charge more to try to cover their labor bills, and their customers are likely to be able to afford the steeper prices. But as households become more strapped for cash, it could become harder for businesses to raise prices without scaring away shoppers.
The U.S. economy added 517,000 jobs in January, and the unemployment rate fell to 3.4% — the lowest level in over a half-century, the government said on Friday.
Why it matters:
Employers added jobs at an unexpectedly rapid pace, the latest sign of a hot labor market despite aggressive moves by the Federal Reserve to cool it down.
The numbers are more than double the 190,000 forecasters anticipated.
Details:
The extraordinary reportcomes as the Fed continues to dial back its pace of interest rates and prepares to raise rates further to restrain the economy and chill still-high inflation.
Fed chair Jerome Powell has acknowledged progress on slowing inflation in recent months while noting risks lie ahead. Among them is wage growth, which is rising at a pace still too swift for the Fed’s comfort.
In January, average hourly earnings rose 0.3% — or 4.4% over the previous year, according to Friday’s data.
The big picture:
The data also showed that employment in 2023 was even stronger than initially thought, with roughly 568,000 more jobs than previously reported.
The update was part of the Labor Department’s annual revisions, which incorporate more complete data from insurance records and updated seasonal adjustments.
The U.S. economy grew at an annualized 2.9% rate in the final months of 2022, the Commerce Department said on Thursday.
Why it matters:
Economists are bracing for a significant slowdown in economic activity as the Federal Reserve’s interest rates hikes take hold, but that certainly wasn’t the case in the final months of last year.
Economists expected the Gross Domestic Product figures to show the economy grew at a 2.6% annualized rate last quarter, after expanding at a 3.2% pace in the prior quarter.
Details:
Consumer spending and businesses built up private inventories gave GDP the biggest boost. Among the biggest drags: fixed investment, a category that includes housing.
By the numbers:
Over the calendar year, GDP grew by 2.1% in 2022 — a decent pace, especially considering the historically aggressive rate hikes by the Federal Reserve that sought to restrain economic activity to contain inflation.
Those rate hikes hit the housing sector particularly hard, which dragged down overall growth earlier last year.
Catch up quick:
The first half of 2022 was dogged by fears that the economy had entered a recession, after back-to-back quarters of contractions. But by the second half of the year, the economy had returned to growth mode.
The growth over 2022 was an expected slowdown from the 5.9% achieved in 2021, when the economy bounced back from the pandemic shock.
Wall Street’s roil has stabilized somewhat in recent days, with the S&P 500 brushing up against its 200-day moving average and rising more than 10 percent since its October lows, as of publication time.
The index’s 50-day moving average is trending up, according to financial data firm Refinitiv. But it still must climb another 7.4 percent to form a “golden cross,” which is when a stock or index’s short-term moving average rises above one of its longer-term moving averages. The S&P 500’s 20-day and 100-day moving averages are closer to the milestone, only needing increases of 5 percent and 1.2 percent, respectively.
The Dow Jones Industrial Average has already formed a small golden cross: its 20-day moving average is 1.2 percent higher than its 200-day moving average.
Investors Optimistic about Healthcare Sector
– Investors are most optimistic about the Healthcare sector, which is trading close to its 3-year average “price to earnings-per-share” ratio of 48.1x, according to Simply Wall Street.
– Analysts are expecting an annual earnings growth of 13.4 percent, higher than the sector’s past year earnings growth of 5 percent.
– Merck and Johnson & Johnson were among last week’s top gainers driving the market.
Inflation Appears to be Slowing
– The recent lower-than-expected inflation figures could indicate it is slowing.
– The Fed may continue raising rates, considering the strength in recent labor market and retail sales data.
Patients at North Carolina-based Atrium Health get what looks like an enticing pitch when they go to the nonprofit hospital system’s website: a payment plan from lender AccessOne. The plans offer “easy ways to make monthly payments” on medical bills, the website says. You don’t need good credit to get a loan. Everyone is approved. Nothing is reported to credit agencies.
In Minnesota, Allina Health encourages its patients to sign up for an account with MedCredit Financial Services to “consolidate your health expenses.” In Southern California, Chino Valley Medical Center, part of the Prime Healthcare chain, touts “promotional financing options with the CareCredit credit card to help you get the care you need, when you need it.”
As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care. By one estimate from research firm IBISWorld, profit margins top 29% in the patient financing industry, seven times what is considered a solid hospital margin.
Hospitals and other providers, which historically put their patients in interest-free payment plans, have welcomed the financing, signing contracts with lenders and enrolling patients in financing plans with rosy promises about convenient bills and easy payments.
For patients, the payment plans often mean something more ominous: yet more debt.
Millions of people are paying interest on these plans, on top of what they owe for medical or dental care, an investigation by KHN and NPR shows. Even with lower rates than a traditional credit card, the interest can add hundreds, even thousands of dollars to medical bills and ratchet up financial strains when patients are most vulnerable.
Robin Milcowitz, a Florida woman who found herself enrolled in an AccessOne loan at a Tampa hospital in 2018 after having a hysterectomy for ovarian cancer, said she was appalled by the financing arrangements.
“Hospitals have found yet another way to monetize our illnesses and our need for medical help,” said Milcowitz, a graphic designer. She was charged 11.5% interest — almost three times what she paid for a separate bank loan. “It’s immoral,” she said.
MedCredit’s loans to Allina patients come with 8% interest. Patients enrolled in a CareCredit card from Synchrony, the nation’s leading medical lender, face a nearly 27% interest rate if they fail to pay off their loan during a zero-interest promotional period. The high rate hits about 1 in 5 borrowers, according to the company.
For many patients, financing arrangements can be confusing, resulting in missed payments or higher interest rates than they anticipated. The loans can also deepen inequalities. Lower-income patients without the means to make large monthly payments can face higher interest rates, while wealthier patients able to shoulder bigger monthly bills can secure lower rates.
More fundamentally, pushing people into loans that threaten their financial health runs against medical providers’ first obligation to not harm their patients, said patient advocate Mark Rukavina, program director at the nonprofit Community Catalyst.
“We’re dealing with sick people, scared people, vulnerable people,” Rukavina said. “Dangling a financial services product in front of them when they’re concerned about their care doesn’t seem appropriate.”
Debt upon debt for patients, as finance firms get a cut of payments
Nationwide, about 50 million people — or 1 in 5 adults — are on a financing plan to pay off a medical or dental bill, according to a KFF poll conducted for this project. About a quarter of those borrowers are paying interest, the poll found.
Increasingly, those interest payments are going to financing companies that promise hospitals they will collect more of their medical bills in exchange for a cut.
Hospital officials defend these arrangements, citing the need to offset the cost of offering financing options to patients. Alan Wolf, a spokesperson for the University of North Carolina’s hospital system, said that the system, which reported $5.8 billion in patient revenue last year, had a “responsibility to remain financially stable to assure we can provide care to all regardless of ability to pay.” UNC Health, as it is known, has contracted since 2019 with AccessOne, a private equity-backed company that finances loans for scores of hospital systems across the country.
This partnership has had a substantial impact on patient debt, according to a KHN analysis of billing and contracting records obtained through public records requests.
Most patients in 2019 were in no-interest payment plans
UNC Health, which as a public university system touts its commitment “to serve the people of North Carolina,” had long offered payment plans without interest. And when AccessOne took over the loans in September 2019, most patients were in no-interest plans.
That has steadily shifted as new patients enrolled in one of AccessOne’s plans, several of which have variable interest rates that now charge 13%.
In February 2020, records show, just 9% of UNC patients in an AccessOne plan were in a loan with the highest interest rate. Two years later, 46% were in such a plan. Overall, at any given time more than 100,000 UNC Health patients finance through AccessOne.
The interest can pile on debt. Someone with a $7,000 hospital bill, for example, who enrolls in a five-year financing plan at 13% interest will pay at least $2,500 more to settle that debt.
How a short-term solution ‘leads to longer-term problems’
Rukavina, the patient advocate, said adding this burden on patients makes little sense when medical debt is already creating so much hardship. “It may seem like a short-term solution, but it leads to longer-term problems,” he said. Health care debt has forced millions of Americans to cut back on food, give up their homes, and make other sacrifices, KHN found.
UNC Health disavowed responsibility for the additional debt, saying patients signed up for the higher-interest loans. “Any payment plans above zero-interest terms/conditions in place with AccessOne are in place at the request of the patient,” Wolf said in an email. UNC Health would only provide answers to written questions.
UNC Health’s patients aren’t the only ones getting routed into financing plans that require substantial interest payments.
At Atrium Health, a nonprofit system with roots as Charlotte’s public hospital that reported more than $7.5 billion in revenues last year, as many as half of patients enrolled in an AccessOne loan were in one of the company’s highest-interest plans, according to 2021 billing records analyzed by KHN.
At AU Health, Georgia’s main public university hospital system, billing records obtained by KHN show that two-thirds of patients on an AccessOne plan were paying the highest interest rate as of January.
A finance firm calls such loans ’empathetic patient financing’
AccessOne chief executive Mark Spinner, who in an interview called his firm a “compassionate, empathetic patient financing company,” said the range of interest rates gives patients and medical systems valuable options. “By offering AccessOne, you’re creating a much safer, more mission-aligned way for consumers to pay and help them stay out of medical debt,” he said. “It’s an alternative to lawsuits, legal action, and things like that.”
AccessOne, which doesn’t buy patient debt from hospitals, doesn’t run credit checks on patients to qualify them for loans. Nor will the company report patients who default to credit bureaus. The company also frequently markets the availability of zero-interest loans.
Some patients do qualify for no-interest plans, particularly if they have very low incomes. But the loans aren’t always as generous as company and hospital officials say.
AccessOne borrowers who miss payments can have their accounts returned to the hospital, which can sue them, report them to credit bureaus, or subject them to other collection actions. UNC Health refers unpaid bills to the state revenue department, which can garnish patients’ tax refunds. Atrium’s collections policy allows the hospital system to sue patients.
Because AccessOne borrowers can get low interest rates by making larger monthly payments, this financing system can also deepen inequalities. Someone who can pay $292 a month on a $7,000 hospital bill, for example, could qualify for a two-year, interest-free plan. But a patient who can pay only $159 a month would have to take a five-year plan with 13% interest, according to AccessOne.
“I see wealthier families benefiting,” said one former AccessOne employee, who asked not to be identified because she still works in the financing industry. “Lower-income families that have hardship are likely to end up with a higher overall balance due to the interest.”
Andy Talford, who oversees patient financial services at Moffitt Cancer Center in Tampa, said the hospital contracted with AccessOne to make it easier for patients to manage their medical bills. “Someone out there is helping them keep track of it,” he said.
But patients can get tripped up by the complexities of managing these plans, consumer advocates say. That’s what happened to Milcowitz, the graphic designer in Florida.
Milcowitz, 51, had set up a no-interest payment plan with Moffitt to pay off $3,000 she owed for her hysterectomy in 2017. When the medical center switched her account to AccessOne, however, she began receiving late notices, even as she kept making payments.
Only later did she figure out that AccessOne had set up two accounts, one for the cancer surgery and another for medical appointments. Her payments had been applied only to the surgery account, leaving the other past-due. She then got hit with higher interest rates. “It’s crazy,” she said.
Lenders see a growing business opportunity
While financing plans may mean more headaches and more debt for patients, they’re proving profitable for lenders.
That’s drawn the interest of private equity firms, which have bought several patient financing companies in recent years. Since 2017, AccessOne’s majority owner has been private equity investor Frontier Capital.
Synchrony, which historically marketed its CareCredit cards in patient waiting rooms, is now also inking deals with medical systems to enroll patients in loans when they go online to pay bills.
“They’re like pilot fish eating off the back of the shark,” said Jonathan Bush, a founder of Athenahealth, a health technology company that has developed electronic medical records and billing systems.
As patient bills skyrocket, hospitals face mounting pressure to collect more, which can make financing arrangements seem appealing, industry experts say. But as health systems go into business with lenders, many are reluctant to share details. Only a handful of hospitals contacted by KHN agreed to be interviewed about their contracts and what they mean for patients.
Several public systems, including Atrium and UNC Health, disclosed information only after KHN submitted public records requests. Even then, the two systems redacted key details, including how much they pay AccessOne.
AU Health, which did not redact its contract, pays AccessOne a 6% “servicing fee” on each patient loan the company administers. But like Atrium and UNC Health, AU Health refused to provide any on-the-record interviews.
Other hospital systems were even less transparent. Mercyhealth, a nonprofit with hospitals and clinics in Illinois and Wisconsin that routes its patients to CareCredit, would not discuss its lending practices. “We do not have anyone available for this,” spokesperson Therese Michels said. Allina Health and Prime Healthcare also wouldn’t talk about their patient financing deals.
Bush said there’s a reason so few hospitals want to discuss their financing deals: They’re embarrassed. “It’s like they quietly write someone’s name on a piece of paper and slide it across the table,” he said. “They don’t want to be a part of it because they have in their institutional memory that they are supposed to look after patients’ best interests.”
Some hospitals and banks still offer interest-free help
Not all hospitals expose their patients to extra costs to finance medical bills.
Lake Region Healthcare, a small nonprofit with hospitals and clinics in rural Minnesota that contracts with Missouri-based Commerce Bank, charges no interest or fees on payment plans. That’s a decision that spokesperson Katie Johnson said was made “for the benefit of our patients.”
Even some AccessOne clients such as the University of Kansas Health System shield patients from interest. But as providers look to boost their bottom lines, it’s unclear how long these protections will last. Colette Lasack, who oversees financing for the Kansas system, noted: “There’s a cost associated with that.”
Meanwhile, large national lenders such as Discover Financial Services are looking at the patient financing business.
“I’ve had to become more of a health care marketer,” said Matt Lattman, vice president for personal loans at Discover, which is pitching the loans to people with unexpected medical bills. “In a world where many people are ill prepared to cover their health care costs, the personal loan can provide an opportunity.”
The Consumer Price Index cooled more than expected in October: it rose 7.7% from a year earlier, down from 8.2% the prior month, the Labor Department said on Thursday.
Why it matters: Inflation still remains painfully high, but a bigger-than-expected easing in price pressures for items like used cars and apparel helped pull the overall index down.
By the numbers: On a monthly basis, CPI rose 0.4%, the same pace as September.
Core CPI, a closely watched gauge that strips out volatile food and energy costs, eased in October. On a monthly basis, it rose 0.3% — up 6.3% from a year ago.
In September, those figures were 0.6% and 6.6%, respectively.
Catch up quick: Soaring costs have eroded many Americans’ wage gains, souring their view on the economy that has otherwise held up.
Supply chain problems have led to shortages of vehicles and other consumer goods, which pushed up prices. Russia’s invasion of Ukraine has created a volatile backdrop for energy costs.
Those supply chain pressures have eased and consumers have dialed back demand for goods, pushing prices down. But costs for services have raced ahead.
Where it stands: The Fed has raced to try to get inflation under control, raising interest rates at a historic clip.
In recent months, inflation data has surprised to the upside. That’s kept officials on an aggressive path to slow the economy down, with the hope inflation will follow suit. Those moves have risked throwing the economy into a recession.
It was a winter of surging job creation. Employers created jobs on a mass scale, Americans returned to the workforce, and the labor market shrugged off the Omicron variant and its broader pandemic funk.
That’s the takeaway from the February jobs report, which showed employers added 678,000 jobs last month. December and January job growth was better than previously thought, and the unemployment rate fell to 3.8%.
Why it matters: Yes, inflation is high as prices rose 7.5% over the last year as of January, and could rise higher as disruptions from the Ukraine war ripple through the economy.
But rising prices are coming amid an astonishingly rapid jobs boom.
Between the lines: The report shows the pandemic impact is fading. But some analysts warn not to expect this level of gains to continue as the crisis in Ukraine cuts into growth.
“The improvement in the American labor market is now very much a rearview mirror phenomenon,” economist Joe Brusuelas wrote in a research note.
One big surprise: Wage growth was essentially nonexistent, with average hourly earnings rising only a penny to $31.58.
That may reflect the nature of the jobs being added — disproportionately in the low-paying leisure and hospitality sector.
That is good news for those worried that rising wages and prices will drive further inflation. It is worse news for workers, whose average pay gain of 5.1% over the last year is far below inflation.
The share of adults in the labor force — which includes those looking for work — ticked up, as did the share of the population that’s actually employed. That suggests the robust job growth is pulling people back into the workforce, if gradually.
The labor force participation rate was 62.3% in February, more than a percentage point below its level two years ago, before the pandemic.
State of play: The Federal Reserve is set to begin an interest rate hiking campaign on March 16, amid high inflation and new geopolitical uncertainty from the Ukraine war. The new numbers are unlikely to change that one way or the other.
The boom in global mergers and acquisitions in 2021 will surge into 2022, fueled by abundant investment capital, historically low interest rates and a rebound in global economic growth, according to a survey of 345 corporate dealmakers in the U.S. by KPMG.
“Based on the volume of new pitches in November and December — transactions that would come to market in Q1 and Q2 of 2022 — there are no signs of a slowing deal market,” according to Philip Isom, global head of M&A at KPMG. While facing high valuations, “most investors have limited time horizons to invest in, so they may be willing to reach further on price than they have historically.”
More than 80% of the survey respondents across several industries expect total M&A valuations to rise further next year, with about one out of every three predicting at least a 10% increase, KPMG said. Dealmakers said transaction levels will remain robust because companies “need to remain on the offense with the competition” and “feel pressure from investors to raise their own valuations.”
Dive Insight:
Worldwide deal value from January until mid-November this year hit $5.1 trillion, the highest level since 2015 and a 34% gain compared with all of 2020, KPMG said. U.S. transactions rose to $2.9 trillion, or 55% more than during all of last year.
M&A has soared in 2021 as the economy recovered from a pandemic shock, record monetary and fiscal stimulus pumped up liquidity and many companies sought through acquisitions to regain their footing after months of lockdowns and persistent supply chain disruptions.
A widespread labor shortage will probably push up dealmaking next year. One-third of survey respondents said they want to use M&A to acquire talent, KPMG said.
Also, companies increasingly use acquisitions to change their business or operating models, KPMG said, noting that industrial and financial services companies buy companies that help speed their digital transformation.
“The aim is to increase efficiencies and contribute to having more agile workforces,” according to Carole Streicher, KPMG’s deal advisory and strategy service group leader in the U.S.
Private equity firms will continue to push up the volume and value of M&A next year, after increasing their involvement in transaction value by more than 55% so far in 2021, KPMG said. PE firms have pursued deals this year in part because of the prospect of an increase in corporate capital gains taxes.
Growing support for sustainability among investors, regulators and other stakeholders may prompt M&A, “as businesses look at their ecological footprint and consider purchasing, rationalizing or divesting assets,” KPMG said. Investors are likely to consider sustainable businesses more adaptable to market shifts.
Finally, concerns about the potential for rising borrowing costs may prompt dealmakers who rely on debt financing to speed up acquisition plans. Federal Reserve Chair Jerome Powell late last month said policymakers at their two-day meeting beginning Tuesday will likely consider speeding up the withdrawal of accommodation.
Dealmakers face some headwinds. Democrats in the Senate have yet to muster enough support for a roughly $2 trillion social policy bill that would help sustain economic growth. Meanwhile, the outbreak of the omicron variant of COVID-19 has highlighted the fragility of financial markets and the economy to any setbacks in curbing the pandemic.
Survey respondents identified several factors that will influence dealmaking next year, with 61% underscoring high valuations, 56% pointing to liquidity and other economic considerations, and 55% noting intense competition for a limited number of highly valued acquisition targets, KPMG said.
Still, only 7% of the survey respondents said they expect deal volumes to decline in their industries next year.
Survey respondents work at companies in industries ranging from media and financial services to energy and technology, with 194 of them CFOs, CEOs or other C-suite executives.
HENRY KOTULA 