Behind the numbers: PCE inflation update, March 2023

The headline, or all-items, PCE price index rose an annualized 0.9 percent in March after increasing an annualized 3.7 percent in February. The price index for PCE excluding food and energy rose at a 3.4 percent annualized rate after increasing an annualized 4.2 percent a month earlier. Prices for food and energy declined.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 3.4 percent in March, compared with a 4.6 percent rate in February.

Over the six months ending in March, the trimmed mean averaged an annualized 4.4 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 3.6 percent and 4.3 percent, respectively.

The 12-month trimmed mean inflation rate was 4.7 percent in March, unchanged from February. The 12-month inflation rate for headline PCE was 4.2 percent, down from 5.1 percent in February, while the 12-month inflation rate for PCE excluding food and energy was 4.6 percent versus 4.7 percent a month earlier.

Energy prices decline

The price index for gasoline and other motor fuel fell a seasonally adjusted 4.7 percent in March after increasing 0.9 percent in February. Prices for the other major energy components also declined, with the price index for fuel oil down 4.0 percent and the price indexes for electricity and natural gas services down 0.7 percent and 7.1 percent, respectively. The price index for energy goods and services as a whole fell 3.7 percent in March after declining 0.5 percent in February.

The price index for gasoline was down 20.8 percent for the 12 months ending in March; it had been down 1.7 percent for the 12 months ending in February. Compared with March 2022, the price index for fuel oil was down 14.2 percent, while the price indexes for electricity and natural gas were up 10.3 percent and 8.7 percent, respectively. The price index for energy goods and services as a whole was down 9.8 percent over the 12 months.

After March’s decline, the price index for gasoline is likely to show an increase when PCE data for April are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 5.0 percent increase in April before seasonal adjustment. The typical seasonal pattern for April—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 2.2 percent increase, making the DOE data consistent with a 2.8 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about 0.8 annualized percentage points to April’s headline inflation rate.

Food prices decrease

The price index for food and beverages purchased for off-premises consumption declined at a 2.3 percent annualized rate in March after increasing at a 2.6 percent rate in February. The decrease in the aggregate reflects a decrease in the prices of less-processed items (down an annualized 16.3 percent) that more than offset an increase in the prices of more-processed food items (up an annualized 3.8 percent).

The price index for food as a whole was up 8.0 percent over the 12 months ending in March. The 12-month increase in the aggregate reflects a 3.0 percent rise in the prices of less-processed items and a 10.0 percent increase in the prices of more-processed items.

Core goods, services prices up

Prices for core goods rose an annualized 2.8 percent in March after increasing an annualized 1.2 percent in February.

Among core goods, the price index for used light trucks (down an annualized 10.1 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from March’s core rate. At the other end of the spectrum, the price index for jewelry (up an annualized 24.6 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to March’s core rate.

For the 12 months ending in March, prices for core goods were up 2.5 percent, compared with 2.3 percent for the 12 months ending in February.

Prices for core services, meanwhile, rose an annualized 3.6 percent in March after increasing an annualized 5.4 percent in February. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 22.9 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.7 annualized percentage points from March’s core rate. The price index for owner-occupied stationary homes (up an annualized 6.0 percent) had the largest positive impact, contributing about 0.7 annualized percentage points to March’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 6.3 percent annualized rate in March, compared with an annualized 8.7 percent in February. Individually, the annualized increases were 6.0 percent for rent, 6.0 percent for OER and 7.3 percent for dining out (more formally, “other purchased meals”).

For the 12 months through March, the big three index was up 8.2 percent, compared with an 8.1 percent increase for the 12 months through February. The price index for core services as a whole rose 5.4 percent for the 12 months ending in March, compared with a 5.6 percent increase for the 12 months through February.