Trimmed Mean PCE Inflation Rate

Behind the Numbers: PCE Inflation Update, September 2022

November 04, 2022

This update, prepared by Dallas Fed Senior Economist Jim Dolmas, provides an in-depth analysis of the latest personal consumption expenditures (PCE) inflation data. NOTE: Terms in bold are defined in the Inflation Update Glossary.

The headline, or all-items, PCE price index rose an annualized 4.1 percent in September after increasing an annualized 3.2 percent in August. The price index for PCE excluding food and energy rose at a 5.5 percent annualized rate after increasing an annualized 6.7 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 4.3 percent in September, compared with a 6.0 percent rate in August.

Over the six months ending in September, the trimmed mean averaged an annualized 5.0 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 4.6 percent and 4.8 percent, respectively.

The 12-month trimmed mean inflation rate was 4.7 percent in September, unchanged from August. The 12-month inflation rate for headline PCE was 6.2 percent, also unchanged from August, while the 12-month inflation rate for PCE excluding food and energy was 5.1 percent versus 4.9 percent a month earlier.

Gasoline Prices Decline Again

The price index for gasoline and other motor fuel fell a seasonally adjusted 4.8 percent in September after decreasing 10.5 percent in August. Prices for the other major energy components were mixed, with the price index for fuel oil down 2.7 percent and the price indexes for electricity and natural gas up 0.4 percent and 2.9 percent, respectively. The price index for energy goods and services as a whole fell 2.4 percent in September after decreasing 5.6 percent in August.

The price index for gasoline was up 18.8 percent for the 12 months ending in September; it had been up 26.2 percent for the 12 months ending in August. Compared with September 2021, the price index for fuel oil was up 58.1 percent, while the price indexes for electricity and natural gas were up 15.5 percent and 33.1 percent, respectively. The price index for energy goods and services as a whole was up 20.3 percent over the 12 months.

After September’s decline, the price index for gasoline is likely to show a sharp increase when PCE data for October are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 3.6 percent increase in October before seasonal adjustment. The typical seasonal pattern for October—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 0.9 percent decline, making the DOE data consistent with a 4.5 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about 1.3 annualized percentage points to October’s headline inflation rate.

Food Prices Rise

The price index for food and beverages purchased for off-premises consumption rose at a 7.7 percent annualized rate in September after increasing at a 9.7 percent rate in August. The increase in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 7.5 percent) and more-processed food items (up an annualized 7.7 percent).

The price index for food as a whole was up 11.9 percent over the 12 months ending in September. The 12-month increase in the aggregate reflects a 9.8 percent rise in the prices of less-processed items and a 12.7 percent increase in the prices of more-processed items.

Core Goods and Services Prices Up

Prices for core goods rose an annualized 2.5 percent in September after increasing an annualized 7.0 percent in August.

Among core goods, the price index for used light trucks (down an annualized 12.1 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from September’s core rate. At the other end of the spectrum, the price index for jewelry (up an annualized 68.3 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to September’s core rate.

For the 12 months ending in September, prices for core goods were up 5.7 percent, up from 5.6 percent for the 12 months ending in August.

Prices for core services, meanwhile, rose an annualized 6.7 percent in September after increasing an annualized 6.6 percent in August. Among components experiencing outsized changes, the price index for hotels and motels (down an annualized 13.6 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from September’s core rate. The price index for owner-occupied stationary homes (up an annualized 10.1 percent) had the largest positive impact, contributing about 1.2 annualized percentage points to September’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 9.2 percent annualized rate in September, compared with a 9.1 percent rate in August. Individually, the annualized increases were 10.6 percent for rent, 10.1 percent for OER and 6.5 percent for dining out (more formally, “other purchased meals”).

For the 12 months through September, the big three index was up 7.1 percent, compared with a 6.8 percent increase for the 12 months through August. The price index for core services as a whole rose 4.9 percent for the 12 months ending in September, compared with a 4.6 percent increase for the 12 months through August.