CFPB Proposes Prohibiting Inclusion of Medical Debt on Consumer’s Credit Reports
On August 10, 2023, CCLP celebrated our 25th anniversary, bringing friends new and old to the Carriage House at the Governor's Residence.
Katie Wallat, CCLP’s Senior Attorney, provided testimony at the August 11, 2023, meeting of the Medical Services Board.
HB23-1126 provides first-in-the-nation protections for Coloradans with medical debt.
Making cents of the headlines, part 1: How do we measure inflation?
Headlines about inflation are everywhere you look these days. And with good reason. Inflation as measured by the Consumer Price Index (CPI) increased by 6.2 percent in October, well above the Federal Reserve’s long-term target of 2.0 percent.
Given this overshoot, you may be wondering why the Federal Reserve or the federal government have yet to respond with interest rate hikes and price and wage controls like they did in the 1970s. As policymakers on both sides of the aisle acknowledge, inflation tends to affect low-income folks most strongly — so shouldn’t we be doing more to address inflation?
Part of the confusion about the Federal Reserve’s (and the Biden Administration’s) stance on inflation comes from misunderstandings about how we measure inflation, and what the numbers we see in the headlines really mean.
First, let’s start with how we measure inflation in the United States using the CPI, the measure most quoted in the press.
The Consumer Price Index is based on the changes in price of hundreds of goods and services that the average consumer purchases. Items and services included in the CPI “basket” can be organized into over 200 categories, but always fall within one of the following major groups:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services.
The prices of all the goods and services in the CPI basket are weighted to reflect consumer spending habits. The total price of the basket can then be compared to past months or years, to see how they changed over that period. The rate of change represents inflation.
Sounds simple enough, but there are several facts we need to consider when interpreting inflation data generated from the CPI:
Fact #1: We compare inflation to one year ago
An inflation rate of 6.2 percent in October 2021 does not mean that prices rose 6.2 percent, on average, from the previous month. Instead, it means that prices rose 6.2 percent from October 2020. Therefore, what was going on in our economy one year ago will influence the rate of inflation we measure today.
For example, the prices of items in the CPI declined from February 2020 to June 2020. The increase in the inflation rate during these months in 2021 likely had more to do with low prices in 2020 than with high prices in 2021. Similarly, when we look at the CPI for October 2020, we see that prices declined between October and November 2020. So part of the price increase captured in the 6.2 percent inflation rate for October 2021 includes price increases that simply returned to pre-October 2020 levels.
This doesn’t mean that prices for consumers aren’t rising, but it does mean we must consider the economic conditions from one year ago when interpreting what the current rate of inflation means for our economy.
Fact #2: Housing cost data can be unreliable
Another measurement issue arises with the way that the CPI accounts for housing prices. Two components make up this measure:
- “Rent of primary residence”
- “Owners’ Equivalent Rent (OER).”
The first component is estimated simply by asking renters what they currently pay for housing. The second component, however, is based on what homeowners guess their house would rent for if they rented it to a tenant.
Unless a homeowner is up to speed on his or her local rental market, it would likely be difficult for them to accurately estimate this price. Indeed, according to the Roosevelt Institute, OER rose significantly faster than rents over the course of this year. This is important because OER represents 25 percent of the CPI, so changes in the OER (what homeowners estimate the price of housing is) will have a much larger influence on overall changes in the CPI than the actual price of housing as captured through tenants’ rents.
Fact #3: Not Everyone Buys All of the Goods and Services Measured by the CPI
There are hundreds of items in the CPI, and not all of them are purchased by every consumer each month. As such, the rate of inflation captured by the CPI might not actually reflect the increase in prices experienced by consumers.
In addition, consumers may change their behavior in the face of price increases — by going without a particular good or service, or by substituting it with a similar, but less expensive, item. This highlights that it is important to understand which items in the CPI basket are driving inflation.
For instance, recent months have seen the prices of new and used cars increase dramatically due to production slowdowns during the pandemic. If consumers cannot afford to pay these higher prices, most will likely choose to put off buying a car until prices drop or their incomes rise.
On the other hand, inflation among essential items, like food or housing, cannot be put off and so have a much larger effect on the financial well-being of consumers. Understanding where inflation is having the greatest effect on consumers can help policy makers to devise targeted and effective relief.
Fact #4: There Are Multiple Measures of Inflation
The CPI is not the only measure of inflation published by the federal government.
The Bureau of Economic Analysis (BEA) releases its own inflation measure, known as the Personal Consumption Expenditures Price Index (PCE). Because it uses a different basket of goods and applies different weights to these goods than does the CPI, the rate of inflation as measured by the PCE tends to be lower than the CPI.
The Bureau of Labor Statistics also releases multiple versions of the CPI. The default measure is formally known as the CPI-U, or the average measure of prices gathered from 75 urban areas across the United States. As such, there is an inflation measure for the Denver-Aurora-Lakewood urban area that tells us how prices have changed in Colorado’s major urban area. Year-over-year inflation in the Denver metro area was 4.5 percent in September compared to 5.4 percent across all urban areas included in the CPI-U. This suggests that Colorado consumers are not experiencing the same magnitude of prices increases as consumers in other parts of the country.
Fact #5: Inflation Data Comes Without Context
Inflation on its own is not necessarily a bad thing. Prices typically rise year to year without creating major disruptions in our lives. Therefore, it is important to look to other economic indicators when evaluating whether inflation is threatening the health of our economy.
For example, comparing inflation rates with the rate of wage growth gives us a sense of how much inflation is eroding consumers’ spending power. If wages are rising at a similar rate as inflation, consumers can purchase the same amount of goods and services despite higher prices. For example, in Colorado, the average wage for a private sector worker increased by 6.6 percent year-on-year in September 2021, much faster than the rate of inflation. Even among workers in the leisure and hospitality sector, the lowest paid in the state, the average weekly wage increased by 16.9 percent in September 2021 from one year ago. While we should interpret these averages with caution, they do suggest that wages for many workers increased faster than the rate of inflation in September when compared to one year ago. Similarly, despite increasing prices, consumer spending and consumer confidence have remained strong throughout 2021.
The importance of understanding measurement
Understanding the way we measure inflation in this country is fundamental to interpreting what monthly inflation figures cited in the press really mean, both for consumers and the health of our economy. This is especially important when evaluating which policies will be most effective in addressing inflation, and whether those policies will create more harm then good.
After a sustained period of inflation during the 1970s, the Federal Reserve, led by Paul Volcker, raised interest rates in an effort to curb price increases. While the Fed was successful, this success came at the expense of economic growth. The years following the Fed’s actions saw a recession and an increase in unemployment during the first two years of the 1980s.
Taking a similar approach to curb the inflation we are experiencing today could have disastrous effect on our current economic recovery. This does not mean we have no options to address the inflation we are currently experiencing, but that we should be cautious to ensure we are not tackling inflation at the expense of other important economic priorities, such as job growth.
The Bureau of Labor Statistics will release inflation estimates for November 2021 on December 10, 2021. You can find the November estimates, as well as data for previous months by visiting the CPI page on the BLS website. This next release will also include November 2021 estimates for the Denver-Aurora-Lakewood area.
About this series
CCLP will be releasing future blog posts on inflation, what it is, what causes it, and what impact it is having on the economic well-being of Coloradans. Our next blog post will discuss the causes of inflation and why it occurs. It will also examine if the inflation we are seeing today is cause for concern. We will follow-up with a post on what is driving inflation in the Denver-Aurora-Lakewood area and what state policy makers can do to address the sources of inflation as they look to the 2022 legislative session.
 October 2021 Consumer Price Index (CPI-U), U.S. Bureau of Labor Statistics. Accessed from https://www.bls.gov/news.release/archives/cpi_11102021.htm on 7 December 2021.
 “Consumer Price Index Frequently Asked Questions”, U.S. Bureau of Labor Statistics. Accessed from https://www.bls.gov/cpi/questions-and-answers.htm#Question_7 on 7 December 2021.
 Mason, J.W. and Lauran Melodia, “Rethinking Inflation Policy: A Toolkit for Economic Recovery”, Roosevelt Institute (2021). Accessed from https://rooseveltinstitute.org/publications/rethinking-inflation-policy-a-toolkit-for-economic-recovery/ on 7 December 2021.
 “Rethinking Inflation Policy”, Roosevelt Institute (2021).
 “Rethinking Inflation Policy”, Roosevelt Institute (2021).
 CPI estimates for the Denver-Aurora-Lakewood area are released every two months. After September 2021, the next and last release for 2021 will be for the month of November.
 State and Area Employment, Hours, and Earnings, U.S. Bureau of Labor Statistics.
 Bivens, Josh, “The Build Back Better Act’s macroeconomic boost looks more valuable by the day”, Economic Policy Institute (2021). Accessed from https://www.epi.org/blog/the-build-back-better-acts-macroeconomic-boost-looks-more-valuable-by-the-day/ on 7 December 2021.