Healthcare Inflation: Outpacing the CPI and Driving Systemic Strain

While general economic inflation cooled slightly in 2024, medical prices resumed their long-term trajectory of outpacing the broader Consumer Price Index (CPI). Hospitals are under particular pressure from rising labor costs, supply chain disruptions, and increasing demand for advanced medical services and pharmaceuticals. The result: a financial environment that challenges the long-term viability of care providers.

Hospital Expenses Growing Faster Than Inflation

In 2024 alone, hospital expenses rose by 5.1%, compared to a 2.9% overall inflation rate. This widening gap highlights the unsustainable growth in healthcare costs. Although expense growth is projected to slow somewhat in 2025, it remains elevated due to stubborn labor shortages and ongoing supply chain issues. Alarmingly, hospitals are delaying critical infrastructure reinvestment, as indicated by a more than 10% increase in the average age of hospital facilities over the past two years. This trend risks degrading care quality and the capacity to meet modern healthcare standards.

Chart 1 illustrates how the Producer Price Index (PPI) for Medical and Surgical Hospitals has steadily outpaced the CPI over the past three decades. The gap widened further after 2021, when general inflation cooled but healthcare prices remained elevated. As of 2025, healthcare-related costs are nearly 2.5x higher than their 1992 levels, while CPI increases have remained more moderate.

Labor Costs: The Dominant Driver

Labor remains the single largest cost for hospitals, accounting for 56% of total expenses. Hospitals employ highly educated, high-skill workers whose roles are difficult to automate or outsource. To maintain adequate staffing amid nationwide shortages, hospitals have been forced to raise wages aggressively. Registered nurse salaries, for instance, have increased 26.6% faster than inflation over the past four years.

The chart above underscores the centrality of labor to hospital finances. While drug costs and supply expenses are growing, it is labor that dominates the cost structure. Without new models to improve efficiency or rebalance spending, the system remains highly exposed to wage inflation.

Persistent Upward Pressure on Medical Prices

Medical care prices typically outpace inflation over time. Although broader prices surged post-pandemic, recent data shows medical costs are once again rising faster than CPI. In June 2024, medical prices rose 3.3% year-over-year, compared to 3.0% for overall CPI. Furthermore, projections from PwC indicate that commercial healthcare spending will grow by 8% in 2025—the highest rate in 13 years. This surge is driven by rising prescription drug costs, higher demand for behavioral health services, and inflationary wage pressures.

This chart highlights the volatility in healthcare price changes on a month-to-month basis. Periods of sharp medical cost growth often persist even as overall inflation moderates, reinforcing the structural inflation embedded in the healthcare system.

Sources & References

American Hospital Association. (2025). The Cost of Caring: Challenges Facing America’s Hospitals in 2025. https://www.aha.org/system/files/media/file/2025/04/The-Cost-of-Caring-April-2025.pdf 

Peterson-KFF. (2024). How does medical inflation compare to inflation in the rest of the economy? https://www.healthsystemtracker.org/brief/how-does-medical-inflation-compare-to-inflation-in-the-rest-of-the-economy/#Cumulative%20percent%20change%20in%20Consumer%20Price%20Index%20for%20All%20Urban%20Consumers%20(CPI-U)%20for%20medical%20care%20and%20for%20all%20goods%20and%20services,%20January%202000%20-%20June%202024 

PwC. (2025). Medical cost trend: Behind the numbers 2025. https://www.pwc.com/us/en/industries/health-industries/library/assets/pwc-behind-the-numbers-2025.pdf 

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL, June 9, 2025.

U.S. Bureau of Labor Statistics, Producer Price Index by Industry: General Medical and Surgical Hospitals [PCU622110622110], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PCU622110622110, June 9, 2025.