(Bloomberg) — The January reading of the Federal Reserve’s preferred inflation measure is likely to be weighed down by a one-time drop in medical care costs, sending a potentially false signal of disinflation that policy makers will probably ignore.
The Commerce Department will report the personal consumption expenditures price index Monday. The median forecasts of economists surveyed by Bloomberg project that the index, excluding food and fuel, rose 0.1 percent in January and was up 1.3 percent from the same month in 2014.
Some economists say it will be weaker. A one-time drop in health-care expenses caused by the expiration of a provision in the Patient Protection and Affordable Care Act (PPACA) means the reading will at best be little changed, according to Omair Sharif, a rates sales strategist at Societe Generale in New York.
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“The optics are not going to be very good for the Fed’s preferred measure,” Sharif said. Nonetheless, policy makers “know this will be a transitory effect.”
PPACA, also known as Obamacare, boosted Medicaid reimbursement rates in 2013 to match those for Medicare. That provision expired at the end of last year, causing the Medicaid rate to fall back in January, according to Sharif. Medical care accounts for about 19 percent of the core PCE price index, making it an important variable.