Behind the Numbers: PCE Inflation Update, August 2022

The headline, or all-items, PCE price index rose an annualized 3.5 percent in August after falling an annualized 1.4 percent in July. The price index for PCE excluding food and energy rose at a 7.0 percent annualized rate after increasing an annualized 0.5 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 6.0 percent in August, compared with a 3.7 percent rate in July.

Over the six months ending in August, the trimmed mean averaged an annualized 4.8 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 6.0 percent and 4.7 percent, respectively.

The 12-month trimmed mean inflation rate was 4.7 percent in August, up from 4.5 percent in July. The 12-month inflation rate for headline PCE was 6.2 percent, down from 6.4 percent in July, while the 12-month inflation rate for PCE excluding food and energy was 4.9 percent versus 4.7 percent a month earlier.

Gasoline Prices Decline Again

The price index for gasoline and other motor fuel fell a seasonally adjusted 10.5 percent in August after decreasing 7.6 percent in July. Prices for the other major energy components were mixed, with the price index for fuel oil down 5.9 percent, and the price indexes for electricity and natural gas up 1.5 percent and 3.5 percent, respectively. The price index for energy goods and services as a whole fell 5.5 percent in August after decreasing 4.9 percent in July.

The price index for gasoline was up 26.2 percent for the 12 months ending in August; it had been up 44.5 percent for the 12 months ending in July. Compared with August 2021, the price index for fuel oil was up 68.8 percent, while the price indexes for electricity and natural gas were up 15.8 percent and 33.0 percent, respectively. The price index for energy goods and services as a whole was up 24.7 percent over the 12 months.

After August’s sharp decrease, the price index for gasoline is likely to show another decline when PCE data for September are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 6.6 percent decrease in September before seasonal adjustment. The typical seasonal pattern for September—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 2.6 percent decline, making the DOE data consistent with a 4.0 percent decrease in the seasonally adjusted gasoline price index. A decrease of that size would subtract about 1.3 annualized percentage points from September’s headline inflation rate.

Food Prices Rise

The price index for food and beverages purchased for off-premises consumption rose at a 9.7 percent annualized rate in August after increasing at a 16.5 percent rate in July. The increase in the aggregate reflects increases in the prices of both more-processed food items (up an annualized 10.8 percent) and less-processed food items (up an annualized 7.1 percent).

The price index for food as a whole was up 12.4 percent over the 12 months ending in August. The 12-month increase in the aggregate reflects a 10.5 percent rise in the prices of less-processed items and a 13.1 percent increase in the prices of more-processed items.

Core Goods and Services Prices Up Sharply

Prices for core goods rose an annualized 7.0 percent in August after increasing an annualized 0.8 percent in July.

Among core goods, the price index for televisions (down an annualized 30.8 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from August’s core rate. At the other end of the spectrum, the price index for computer software and accessories (up an annualized 24.5 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to August’s core rate.

For the 12 months ending in August, prices for core goods were up 5.6 percent, up from 5.5 percent for the 12 months ending in July.

Prices for core services, meanwhile, rose an annualized 6.9 percent in August after increasing an annualized 0.4 percent in July. Among components experiencing outsized changes, the price index for nonprofit hospital services (down an annualized 1.7 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from August’s core rate. The price index for owner-occupied stationary homes (up an annualized 8.9 percent) had the largest positive impact, contributing about 1.0 annualized percentage points to August’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 a 9.0 percent annualized rate in August, compared with an 8.3 percent rate in July. Individually, the annualized increases were 9.2 percent for rent, 8.9 percent for OER and 9.2 percent for dining out (more formally, “other purchased meals”).

For the 12 months through August, the big three index was up 6.8 percent, compared with a 6.5 percent increase for the 12 months through July. The price index for core services as a whole rose 4.7 percent for the 12 months ending in August, compared with a 4.4 percent increase for the 12 months through July.