But these policy-induced weights are set to largely go into remission by the second quarter of 2016, breathing new life into core inflation.
In addition, labor costs for hospitals are picking up steam, and services should follow suit based on their historical lagged link with wages:
Medicaid reimbursements will also become less stingy as state governments' fiscal positions continue to firm, Phillips claims.
"Assuming that the policy-related influences roll off as we expect and that the underlying rate of health inflation rises by the same rate as our predicted path (i.e., it starts from the lower than predicted level but rises by the same amount), we expect that the PCE price index for health services should return to around 1.5 percent year-on-year growth by [the second quarter of] 2016 under the base case, raising core PCE inflation by about 0.15 percentage points," he wrote. "If our estimated equation is accurate and prices begin to catch up with rising wages in the sector, health inflation could potentially rise by a bit more."
As of September, the core PCE index has risen 1.3 percent year-over-year, well shy of the Fed's 2-percent target. A major challenge for the U.S. central bank, which has strongly hinted at liftoff for interest rates in December, will be proving that core PCE inflation can rise along with policy rate.
According to Goldman's analysis, this key segment looks likely to cooperate in this regard, helping the central bank move closer to meeting its dual mandate.