Behind the Numbers: PCE Inflation Update, July 2022

The headline, or all-items, PCE price index fell an annualized 0.8 percent in July after increasing an annualized 12.2 percent in June. The price index for PCE excluding food and energy rose at a 1.0 percent annualized rate after increasing an annualized 7.6 percent a month earlier. Prices for food rose sharply. Energy prices declined, led by a sharp drop in the price index for gasoline and other motor fuel.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 3.4 percent in July, compared with a 6.9 percent rate in June.

Over the six months ending in July, the trimmed mean averaged an annualized 4.3 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 6.5 percent and 4.1 percent, respectively.

The 12-month trimmed mean inflation rate was 4.4 percent in July, unchanged from June. The 12-month inflation rate for headline PCE was 6.3 percent, down from 6.8 percent in June, while the 12-month inflation rate for PCE excluding food and energy was 4.6 percent, versus 4.8 percent a month earlier.

Gasoline Prices Down Sharply

The price index for gasoline and other motor fuel fell a seasonally adjusted 7.6 percent in July after increasing 11.0 percent in June. Prices for the other major energy components were mixed, with the price indexes for fuel oil and natural gas down 11.0 percent and 3.6 percent, respectively, and the price index for electricity up 1.6 percent. The price index for energy goods and services as a whole fell 4.8 percent in July after increasing 7.5 percent in June.

The price index for gasoline was up 45.0 percent for the 12 months ending in July; it had been up 60.7 percent for the 12 months ending in June. Compared with July 2021, the price index for fuel oil was up 75.6 percent, while the price indexes for electricity and natural gas were up 15.3 percent and 30.3 percent, respectively. The price index for energy goods and services as a whole was up 34.4 percent over the 12 months.

After July’s sharp decrease, the price index for gasoline is likely to show a similarly sharp decline when PCE data for August are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 11.6 percent decrease in August before seasonal adjustment. The typical seasonal pattern for August—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 1.8 percent decline, making the DOE data consistent with a 9.8 percent decrease in the seasonally adjusted gasoline price index. A decrease of that size would subtract about 3.2 annualized percentage points from August’s headline inflation rate.

Food Prices Rise

The price index for food and beverages purchased for off-premises consumption rose at a 16.4 percent annualized rate in July after increasing at a 12.4 percent rate in June. The increase in the aggregate reflects increases in the prices of both more-processed food items (up an annualized 21.0 percent) and less-processed food items (up an annualized 5.5 percent).

The price index for food as a whole was up 11.9 percent over the 12 months ending in July. The 12-month increase in the aggregate reflects a 10.7 percent rise in the prices of less-processed items and a 12.4 percent increase in the prices of more-processed items.

Core Prices Post Moderate Increases

Prices for core goods rose an annualized 0.9 percent in July after increasing an annualized 8.2 percent in June.

Among core goods, the price index for computer software and accessories (down an annualized 20.4 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from July’s core rate. At the other end of the spectrum, the price index for new light trucks (up an annualized 7.8 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to July’s core rate.

For the 12 months ending in July, prices for core goods were up 5.4 percent, down from 5.6 percent for the 12 months ending in June.

Prices for core services, meanwhile, rose an annualized 1.1 percent in July after increasing an annualized 7.3 percent in June. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 42.5 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 1.5 annualized percentage points from July’s core rate. The price index for owner-occupied stationary homes (up an annualized 7.8 percent) had the largest positive impact, contributing about 0.9 annualized percentage points to July’s core rate.

Our “big three” price index—aggregating three of the largest and least-volatile components of core services: rent, owners’ equivalent rent (OER) and the price of dining out—rose at an 8.3 percent annualized rate in July, compared with a 9.0 percent rate in June. Individually, the annualized increases were 8.8 percent for rent, 7.8 percent for OER and 8.9 percent for dining out (more formally, “other purchased meals”).

For the 12 months through July, the big three index was up 6.5 percent, compared with a 6.2 percent increase for the 12 months through June. The price index for core services as a whole rose 4.2 percent for the 12 months ending in July, compared with a 4.5 percent increase for the 12 months through June.