Trimmed Mean PCE Inflation Rate

Behind the numbers: PCE inflation update, May 2023

June 30, 2023

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 1.6 percent in May after increasing an annualized 4.4 percent in April. The price index for PCE excluding food and energy rose at a 3.8 percent annualized rate after increasing an annualized 4.7 percent a month earlier. Energy prices declined, led by a sharp drop in the price index for gasoline and other motor fuel. Prices for food rose moderately.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 3.2 percent in May, compared with 4.3 percent in April.

Over the six months ending in May, 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 3.4 percent and 4.6 percent, respectively.

The 12-month trimmed mean inflation rate was 4.6 percent in May, down from 4.8 percent in April. The 12-month inflation rate for headline PCE was 3.8 percent, down from 4.3 percent in April, 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 5.6 percent in May after increasing 2.8 percent in April. Prices for the other major energy components also declined, with the price index for fuel oil down 7.7 percent and the price indexes for electricity and natural gas services down 1.0 percent and 2.6 percent, respectively. The price index for energy goods and services as a whole fell 3.9 percent in May after rising 0.7 percent in April.

The price index for gasoline was down 21.6 percent for the 12 months ending in May; it had been down 13.5 percent for the 12 months ending in April. Compared with May 2022, the price indexes for fuel oil and natural gas were down 37.0 percent and 9.5 percent, respectively, while the price index for electricity was up 6.2 percent. The price index for energy goods and services as a whole was down 13.4 percent over the 12 months.

After May’s sharp decline, the price index for gasoline is likely to show a small increase when PCE data for June are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 0.6 percent increase in June before seasonal adjustment. The typical seasonal pattern for June—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 0.3 percent decrease, making the DOE data consistent with a 0.9 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about a quarter of an annualized percentage point to June’s headline inflation rate.

Food prices post moderate gain

The price index for food and beverages purchased for off-premises consumption increased an annualized 1.8 percent in May after falling an annualized 0.3 percent in April. The increase in the aggregate reflects an increase in the prices of more-processed food items (up an annualized 3.8 percent) that more than offset a decrease in the prices of less-processed items (down an annualized 3.1 percent).

The price index for food as a whole was up 5.8 percent over the 12 months ending in May. The 12-month increase in the aggregate reflects a 0.1 percent rise in the prices of less-processed items and an 8.0 percent increase in the prices of more-processed items.

Core goods, services prices up

Prices for core goods rose an annualized 4.4 percent in May after increasing an annualized 2.3 percent in April.

Among core goods, the price index for furniture (down an annualized 8.5 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from May’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 68.0 percent) had the largest positive impact, contributing about 0.7 annualized percentage points to May’s core rate.

For the 12 months ending in May, prices for core goods were up 2.6 percent, identical to their increase over the 12 months ending in April.

Prices for core services, meanwhile, rose an annualized 3.7 percent in May after increasing an annualized 5.5 percent in April. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 13.2 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.4 annualized percentage points from May’s core rate. The price index for owner-occupied stationary homes (up an annualized 6.5 percent) had the largest positive impact, contributing about 0.8 annualized percentage points to May’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 May, compared with an annualized 6.2 percent increase in April. Individually, the annualized increases were 6.0 percent for rent, 6.5 percent for OER and 5.9 percent for dining out (more formally, “other purchased meals”).

For the 12 months through May, the big three index was up 8.0 percent, compared with an 8.2 percent increase for the 12 months through April. The price index for core services as a whole rose 5.4 percent for the 12 months ending in May, compared with a 5.5 percent increase for the 12 months through April.