The consumer price index (CPI) measures inflation rates based on several consumer categories, but housing has the most significant impact. Housing accounts for more than one-third of the weighting in the CPI, which makes it the largest expense for an average US household, according to economists. The pandemic led to a hike in housing costs, but they have slowed and even started to fall in some areas, although CPI data operates with a substantial lag of between six months to a year. However, overall inflation is expected to ease as the CPI covers the housing price cooldown.
Health insurance prices have been declining since October 2022, according to CPI data, but consumers’ out-of-pocket costs have not necessarily dropped. The government does not base health insurance inflation on measuring consumers’ direct costs, such as monthly premiums. Instead, it measures costs indirectly by relying on health insurers’ profits, which serve as a proxy of consumer prices. Early in the pandemic, health insurers’ profits increased since consumers were still paying premiums, but they were disallowed from visiting doctors or hospitals for elective procedures.
Consumer electronics, such as smartphones, TVs, and computers, saw deflated prices in 2022 and have continued the trend in 2023. However, phone prices have not necessarily fallen in retail stores due to a hedonic quality adjustment in the CPI, which captures the improvements in microchips, software, screen resolution, and other aspects of electronic devices. This adjustment makes it seem like prices have fallen, although consumers are merely getting better-quality electronics for the price they pay.
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