Behind the numbers: PCE inflation update, December 2022

The headline, or all-items, PCE price index rose an annualized 0.6 percent in December after increasing an annualized 1.2 percent in November. The price index for PCE excluding food and energy rose at a 3.6 percent annualized rate after increasing an annualized 1.9 percent a month earlier. Energy prices were down for the month, led by a drop in the price index for gasoline and other motor fuel. Food prices rose.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.3 percent in December, compared with a 3.0 percent rate in November.

Over the six months ending in December, the trimmed mean averaged an annualized 3.8 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.1 percent and 3.7 percent, respectively.

The 12-month trimmed mean inflation rate was 4.4 percent in December, down from 4.6 percent in November. The 12-month inflation rate for headline PCE was 5.0 percent, down from 5.5 percent in November, while the 12-month inflation rate for PCE excluding food and energy was 4.4 percent versus 4.7 percent a month earlier.

Gasoline price index down sharply

The price index for gasoline and other motor fuel fell a seasonally adjusted 9.2 percent in December after decreasing 2.1 percent in November. Prices for the other major energy components were mixed, with the price index for fuel oil down 16.6 percent and the price indexes for electricity and natural gas services up 1.0 percent and 3.0 percent, respectively. The price index for energy goods and services as a whole fell 5.1 percent in December after decreasing 1.5 percent in November.

The price index for gasoline was down 0.9 percent for the 12 months ending in December; it had been up 10.8 percent for the 12 months ending in November. The last time the gasoline index was down on a 12-month basis was in January 2021. Compared with December 2021, the price index for fuel oil was up 41.5 percent, while the price indexes for electricity and natural gas were up 14.3 percent and 19.3 percent, respectively. The price index for energy goods and services as a whole was up 6.9 percent over the 12 months.

After December’s large decrease, the price index for gasoline is likely to show an increase when PCE data for January are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 2.5 percent increase in January before seasonal adjustment. The typical seasonal pattern for January—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 0.9 percent increase, making the DOE data consistent with a 1.6 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about 0.5 annualized percentage points to January’s headline inflation rate.

Food prices rise

The price index for food and beverages purchased for off-premises consumption rose at a 2.9 percent annualized rate in December after increasing at a 4.2 percent rate in November. The increase in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 1.3 percent) and more-processed items (up an annualized 3.5 percent).

The price index for food as a whole was up 11.2 percent over the 12 months ending in December. The 12-month increase in the aggregate reflects a 7.7 percent rise in the prices of less-processed items and a 12.5 percent increase in the prices of more-processed items.

Core goods prices down, services up

Prices for core goods fell an annualized 0.7 percent in December after decreasing an annualized 5.2 percent in November.

Among core goods, the price index for used light trucks (down an annualized 26.7 percent) had the largest negative impact, subtracting about 0.4 annualized percentage points from December’s core rate. At the other end of the spectrum, the price index for jewelry (up an annualized 54.2 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to December’s core rate.

For the 12 months ending in December, prices for core goods were up 3.0 percent, compared with 3.8 percent for the 12 months ending in November.

Prices for core services, meanwhile, rose an annualized 5.2 percent in December after increasing an annualized 4.6 percent in November. Among components experiencing outsized changes, the price index for paramedical services (down an annualized 5.8 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from December’s core rate. The price index for owner-occupied stationary homes (up an annualized 9.8 percent) had the largest positive impact, contributing about 1.1 annualized percentage points to December’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 December, compared with an 8.1 percent rate in November. Individually, the annualized increases were 9.9 percent for rent, 9.8 percent for OER and 4.2 percent for dining out (more formally, “other purchased meals”).

For the 12 months through December, the big three index was up 7.6 percent, compared with a 7.5 percent increase for the 12 months through November. The price index for core services as a whole rose 4.9 percent for the 12 months ending in December, compared with a 5.0 percent increase for the 12 months through November.