All posts by Anika Anand

Anika Anand is a student at the City University of New York Graduate School of Journalism specializing in business and economics reporting. Check out her portfolio at anikaanand.com.

Friday’s CPI numbers will show a steadily growing economy

By Anika Anand

March inflation numbers that will be released Friday will likely show a .3 percent increase in the total price of goods and services. This means the economy is on a path to recovery and the Federal Reserve will continue to stand by its stimulus policy of near-zero interest rates.

Gas prices will be mostly responsible for the uptick in the Consumer Price Index, while the prices of other goods and services will remain relatively stable. The core index, which excludes food and gas because of their volatility, will increase a healthy .2 percent. The Fed is comfortable with this rate of change, because it’s a reflection that the economy is growing without a significant cost burden to consumers.

“Even if inflation does start to creep higher in the short term, the Fed will maintain its stance that any impact on inflation is transitory,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets.

The Federal Open Market Committee, which is responsible for setting interest rates, said in March, “The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.”

The Fed considers long-term inflation when deciding on policy changes, Oubina said. And long-term inflation numbers have been declining. February’s year-over-year inflation, or how much prices have increased from February 2011 to February 2012, was 2.9 percent. This number has come down from a 3.9 year-over-year inflation in September 2011.

Because long-term inflation is on the decline and current CPI numbers show that inflation is being contained, the Fed will likely keep interest rates near zero, which they hope will boost the economy by giving businesses and consumers cheaper access to credit.

Other indicators that may affect the forecast for Friday’s CPI numbers are the U.S. Import and Export Price Indexes, the Institute for Supply Management Survey and the Producer Price Index.

The U.S. Import and Export Price Indexes, released Wednesday, show that import prices increased 1.3 percent in March, the first increase since November and the highest increase since April 2011. The change was mostly attributed to higher import fuel prices, which will likely contribute to the predicted .3 percent increase in the CPI.

The Institute for Supply Management survey shows that prices of raw materials have steadily increased for manufacturers since December 2011. Also the Producer Price Index, which measures sellers’ price changes, will be released Thursday and will likely show that producers are taking on the increase of costs and not passing them onto the consumer.

Overall, there will be some small increases in apparel prices, since those dramatically declined last month, Oubina said.

“Otherwise, inflation will be a pretty ho hum number.”

First New York Health Insurance Cooperative Has Potential To Lower Healthcare Prices

By Anika Anand

 

The thought of health insurance is a huge source of anxiety for New Yorker Cayte Grieve.

After the small business owner realized she would have to pay about $15,000 out of pocket to treat a jaw infection, she considered dental insurance. But after she discovered the monthly premiums would be more expensive long term, she decided to take the financial hit. Now she just pays $100 per month for emergency health insurance, which provides coverage only for emergency room and ambulance care.

“When it comes to buying health insurance, you just have no idea if you’re making the right decision,” Grieve said.

Healthcare costs in the New York-Northern New Jersey area increased 5.2 percent in the past year, the most rapid rise in consumer goods behind the cost of fuel. The rising costs have made health insurance increasingly unaffordable for individuals who have to buy their own. This poses a threat to consumer spending, which is helping drive the nation’s economic recovery.

The president’s health reform bill presents a potential solution: health insurance cooperatives. Of the $3.4 billion the new healthcare law sets aside for co-ops, $174 million in loans was recently given to the Freelancers Health Service Corp., New York’s first health insurance co-op.

As of September 2011, there were 2.9 million New Yorkers without health insurance, a number that has increased much faster in New York than in the U.S. as a whole, according to the Fiscal Policy Institute.

The purpose of health insurance co-ops is to introduce more competition to the market and help drive down premiums.

They differ from larger, corporate insurance companies because they will be nonprofits, which mean any revenue earned will be put back into the co-op. Also, they will be owned and run by an elected board of co-op members, rather than investors.

Because of these two characteristics, consumers are more likely to trust the co-op model versus corporate insurance companies, supporters say.

“We’ve spoken to so many people who feel so lost in the healthcare system just trying to find a doctor they can trust,” said Ann Boger, the chief operating officer of the Freelancers Union—the organization that is sponsoring the new Freelancers Health Service Corp.

Co-ops were more popular back in the early 1900s, and they did quite well until the 1980s, said Peter Kongstvedt, a health policy professor at George Mason University. Then, the market changed, and people decided they wanted access to all the doctors in the market, rather than the ones who had signed up to be part of the co-op. But now the market may be changing again, and people are becoming more interested in having a smaller network of providers who they can trust.

“Because of the terrific cost of inflation, employers and some consumers are having a revived interest in narrow networks,” Kongstvedt said. In a narrow network, the co-op promises specific doctors and hospitals a steady flow of business from its members. So, they are able to negotiate lower prices for medical services.

There’s also another way co-ops can theoretically lower healthcare costs, said Richard Miltenberger, a board member of Montana Health Cooperative, which recently also received a federal loan.

It’s hard for existing insurance companies to turn over a new leaf, but co-ops can start with a blank sheet of paper and aren’t burdened by longstanding contracts with hospitals and doctors, he said. They can pay a doctor more money if he or she spends more time with patients. Or, co-ops can redirect reimbursements toward primary care instead of high level expensive testing, he said.

The Freelancers Union, a 170,000 member nationwide organization, currently offers insurance for only freelancers through its Freelancers Insurance Company. The co-op will offer coverage for all individuals, not just freelancers. The Freelancers Union is supporting the creation of the co-op, but will not actually run it. They also received funding to support health insurance co-ops in New Jersey and Oregon.

The co-ops will begin enrolling members in Fall 2013 and launch on Jan. 1, 2014. The Freelancers Union said in the next seven years, they expect to cover 100,000 New Yorkers.

The coverage plans are still being finalized, Boger said, and they are working closely with financial experts to figure out how the co-op should price its plans to be competitive.

To make their plans competitively priced, they’ll need to attract a significant number of members. But to attract a large pool of consumers, they’ll need to convince people like Grieve that they have her best interests at heart.

After dealing with all the confusion over what health insurance to buy, Grieve said when she hears details about the co-op, her “skeptic brain takes over.” She rattles off a list of questions, including ‘Is the insurance one size fits all?’ and ‘How do I qualify?’

Then she asks the one question that the co-ops need to have a convincing answer to if they’re going to succeed: Is it worth it?

 

Here’s some of the interesting data we’ve looked at so far. We’ll continue to build out more graphs as more people fill out the survey. So, pass this along to your friends and see how the results change.

February CPI supports Fed’s decision to keep U.S. monetary policy unchanged

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y Anika Anand

Inflation numbers for February show there’s no reason to change the Federal Reserve’s stimulus policy of near-zero interest rates.

Despite a sharp increase in gas prices that drove up inflation last month, overall inflation remains in check– a prediction the Federal Open Market Committee made days before the numbers were released.

“The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate,” the FOMC said in a statement released Tuesday.

The Consumer Price Index increased by an expected .4 percent last month, and the gasoline index accounted for 80 percent of this change, according to a report by the Bureau of Labor Statistics released Friday. Core CPI, which excludes food and energy because of their volatility, only rose .1 percent, which is less than its rise the previous month.

The numbers largely support the FOMC’s decision to leave its stimulus policy unchanged.

“Gasoline prices is where the concern currently lies in terms of inflationary issues,” said 4CAST Senior Economist Sean Incremona, supporting the Fed’s outlook. “But that’s gonna be largely temporary as we continue to see a very steady underlying pace in prices.”

The FOMC sets interest rates for borrowing between banks and will aim to keep rates close to zero percent at least through late 2014. The Fed hopes low interest rates will boost the economy by giving businesses and consumers cheaper access to credit. But critics say these near-zero interest rates will cause a sudden and rapid rise in inflation down the road. The Fed has responded by saying the country’s high unemployment and a flailing housing market will prevent inflation from becoming a problem– February’s inflation numbers prove that argument true, for now.

Economist Hugh Johnson said he understands why the Fed didn’t change its stimulus policies, but there may be cause for concern in coming months. The Fed has set a target rate of inflation at 2 percent, as measured by the annual change in the price index for personal consumption expenditures. The PCEPI numbers are usually similar to CPI numbers.

“The year-over-year change in the headline number is coming down to roughly 2.9, so it’s headed in the right direction,” Johnson said. “The core rate, which is probably more useful, has been going up. The year-over-year rate is over 2 percent, so that’s troubling to see.”

The average price of a gallon of gas is $3.83, which is about 30 cents more than last month, but these higher prices haven’t drastically affected the consumer yet, according to the CPI report.

The prices of housing, new vehicles, medical care and household furnishings and operations all increased in February, while prices for clothing, recreation, used cars and trucks and tobacco all decreased.

The Producer Price Index increased .4 percent for finished goods in February, according to a report released Thursday.

Since the price of production increased, but the price of consumer goods remained relatively unchanged overall, this means retailers and producers have been “sucking it up” with commodity prices, said Phil Flynn, vice president and energy analyst with PFG Best.

“It’s a competitive marketplace because of softness in the economy,” he said. “Retailers and producers are having a hard time passing on those costs to the folks. Profit margins are going to be squeezed on the producer side. But the real battle is between producers and retailers. Who’s going to eat up these costs?”

January’s rise in inflation attributed to increased gas prices

By Anika Anand, New York City News Service

Inflation slightly increased in January, mainly due to rising gasoline prices, the Labor Department reported Friday.

Gas prices increased in January and the average price for a gallon of gas in the U.S. rose almost 12 cents in the past three weeks to about $3.51, according to the Lundberg Survey Inc.

These prices will likely continue to increase due to escalating tensions between the U.S. and Iran over nuclear weapons and the potential threat of war between Iran and Israel, said economist Mike Englund with Action Economics!

Iran, which is the world’s fifth-largest oil producer, recently threatened that it would block the Strait of Hormuz, which is the gateway to Persian Gulf oil.

The .2 percent increase in overall inflation was lower than most economists forecasted. But a closer look at what items were more expensive to purchase may point to a steadily increasing consumer price index in months to come, economists said.

Housing, food, energy and medical care commodities and services are some of the most heavily weighted goods and services that contribute to the overall rise of inflation. All of these factors increased in January, and the overall price of goods and services has climbed 2.9 percent over the past year.

“What we’re seeing, really, is a very broad based and I think insidious march higher of the general price level,” said Dr. Ken Mayland, an economist with ClearView Economics.

Other factors will also contribute to the future rise of inflation, Englund said. First, based on world trade indicators for crude oil, there will be a general increase in oil prices through February and into March. Another reason to bet on rising inflation in coming months is because food and energy usually hit their highest level in July, Englund added.

But even without factoring in food and energy prices, which some economists exclude from consideration because of their volatility, there isn’t any solid indication that overall inflation has hit its peak, Mayland said.

This core inflation number, what inflation would be if food and energy weren’t accounted for, is now up to 2.3 percent– the highest it’s been since September 2008.

The Federal Reserve has set an annual inflation target of 2 percent, but Englund said he’s doubtful that will happen. He also said he doesn’t think there’s anything the Fed can do in terms of quantitive easing (printing more money) or changing the interest rate policy, because investors and entrepreneurs just aren’t willing to take a risk in the current economic cycle.

The price of wholesale goods rose .1 percent in January, according to the Producer Price Index report released Thursday. The energy goods index fell .5 percent, which may have contributed to the consumer price index’s energy decline. This slight increase doesn’t necessarily mean that businesses will charge consumers more.

Energy prices have risen by 6.1 percent over the last year and the price of food has risen 4.4 percent over the last year.