Medical Care Prices Fell for First Time in 35 Years

Then again, maybe the deflationary apocalypse really is upon us: For the first time in 35 years, the one sector of the economy always guaranteed to get more expensive suddenly became a bit cheaper in July.

According to a report released today by the Labor Department, consumer prices over all grew 0.3 percent in July, on a seasonally adjusted basis. The medical care index, however, fell 0.1 percent in July, after three and a half decades of constant increases.

To understand why this is such a big deal, let’s chart prior trends in health care costs. The first graph below shows the index value for all consumer items and for medical care alone. (The values shown refer to prices relative to their levels in 1982-84, which is set to an index benchmark of 100.)

Source: Bureau of Labor Statistics

As you can see, the cost of medical care has charged upward relentlessly, especially relative to other consumer products.

Here is another graph that shows the month-over-month percentage change in the medical care index, adjusted for seasonality. Notice how many times the line dips below zero, which would indicate a month-over-month fall in prices:

Source: Bureau of Labor Statistics

Yep. In the last 40 years, the Labor Department reports that there are only three months in which medical care prices fell. Going back to 1947, the earliest year for which the department has these statistics, yields only an additional three months of medical care disinflation. So, in the last 63 years, this has happened exactly six times.

Granted, we shouldn’t read too much into this. The decline in the medical care index was after all only 0.1 percent from June to July, a slight drop that still puts the possibility of growth within the margin of error. And besides, we shouldn’t put too much stock in a single data point. But even with those caveats, it still feels strange to see a negative sign in front of this entry in the consumer price index report.