Weekly Economic Update 07-24-26: Industrial Production; and Leading Economic Indicators

The industrial sector is stalled, and the financial markets are the main driver of the economy.

The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents. 

Only two pieces of economic data have been released since my last post, and one of them (the Leading Economic Indicators) is practically worthless, so this week’s post will be short.

But that gives me the opportunity to touch on a topic that was recently brought to my attention. When the Consumer Price Index (CPI) came out over a week ago, the number was down. Surprisingly so, and the cause was laid squarely at the feet of oil. But there was more in the report, and as I dug deeper, I came across the CPI reading for medical care. Over the past year, the government says medical care got 2.0% more expensive.

That’s it. Two percent — slower than the 3.5% rise in the all-items CPI, and a long way from what you felt the last time you opened the Explanation of Benefits (EOB) from your insurance company. So either your co-pays are lying to you, or the Bureau of Labor Statistics (BLS) is measuring something different than what you consider “healthcare.”

Turns out, it’s the second one. The government’s CPI says medical care rose 2.0%. The Kaiser Family Foundation says the average employer family premium jumped 6% — to $26,993.

Both are “real,” but only one of them is measuring your real life.

So how does the most-watched inflation gauge in the country look at the fastest-growing line in the American family budget and come back with just two percent? Not by lying, exactly. But by measuring something else — and then letting you assume it measured the thing you actually care about.

First, let’s start with what the CPI does NOT do: it never prices your insurance premium. Not the number on your pay stub, not your “Obamacare” bill — never. The health-insurance piece of the index runs on what the BLS calls the “retained earnings method.” In English — take the premiums insurers collect, subtract the benefits they pay out, and call the leftover — administrative costs and profit — the price of insurance. Understand what that means. If premiums go up, but payouts go up faster, the measured “price” of your coverage actually goes DOWN. Magical deflation!

That is not a hypothetical situation. Through 2022 and 2023, the CPI’s health-insurance number posted steep double-digit annual declines, but not a single American’s premium actually fell. The formula simply decided retained earnings had shrunk, and that phantom drop dampened core inflation for the better part of a year — right when the ruling elite in Washington badly wanted (or better yet needed) a cooler inflation number.

That leads me to the second concern…the weighting of healthcare in the index, which frankly, is arguably worse. The CPI counts only what comes out of YOUR pocket. Of that $26,993 family premium, the employer pays roughly $20,000 — about three-quarters — and as far as the index is concerned, that part is invisible. Medicare Part A and Medicaid? Also out of the formula. So the single biggest cost of insuring a family in this country cannot move the number, no matter how fast it climbs, by definition. That’s why healthcare is barely 8% of the CPI while it is closer to 18% of the economy.

Put these together, and you get a healthcare CPI number that is far below what households actually pay — year after year, and always in the same direction. (When a measurement “error” only ever breaks one way — dampening the official inflation rate, and never overstating it — you’re allowed to stop calling it an accident.)

So is it fraud? Not really. The BLS publishes the methodology, the logic hangs together on its own terms, and honestly, pricing insurance quality is a hard problem. But “hard problem,” and “documented choice” are not the same as “measures your reality.” The CPI answers a narrow question — the price change of out-of-pocket care on a fixed basket of services — and then the whole country reads it as the answer to a completely different question — what is the cost of healthcare doing to me?

People have every right to be frustrated by that gap. But at least, now you know.