Trimmed Mean PCE Inflation Rate

Behind the numbers: PCE inflation update, July 2023

August 31, 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 2.6 percent in July after increasing an annualized 2.5 percent in June. The price index for PCE excluding food and energy rose at a 2.6 percent annualized rate after increasing an annualized 2.6 percent a month earlier. Food and energy prices rose.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.4 percent in July, compared with 2.6 percent in June.

Over the six months ending in July, the trimmed mean averaged an annualized 3.5 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.5 percent and 3.4 percent, respectively.

The 12-month trimmed mean inflation rate was 4.1 percent in July, down from 4.2 percent in June. The 12-month inflation rate for headline PCE was 3.3 percent, up from 3.0 percent in June, while the 12-month inflation rate for PCE excluding food and energy was 4.2 percent versus 4.1 percent a month earlier.

Energy prices tick up

The price index for gasoline and other motor fuel rose a seasonally adjusted 0.2 percent in July after rising 0.9 percent in June. Prices for the other major energy components were mixed, with the price index for electricity services down 0.7 percent and the price indexes for fuel oil and natural gas services up 3.0 percent and 2.0 percent, respectively. The price index for energy goods and services as a whole rose 0.1 percent in July after rising 0.6 percent in June.

The price index for gasoline was down 22.7 percent for the 12 months ending in July; it had been down 28.7 percent for the 12 months ending in June. Compared with July 2022, the price indexes for fuel oil and natural gas were down 26.5 percent and 13.0 percent, respectively, while the price index for electricity was up 3.0 percent. The price index for energy goods and services as a whole was down 14.6 percent over the 12 months.

After July’s modest gain, the price index for gasoline is likely to show a hefty increase when PCE data for August are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 6.1 percent increase in August before seasonal adjustment. The typical seasonal pattern for August—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 4.2 percent decrease, making the DOE data consistent with a 10.3 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about 2.8 annualized percentage points to August’s headline inflation rate.

Food prices rise

The price index for food and beverages purchased for off-premises consumption increased an annualized 2.9 percent in July after falling an annualized 1.5 percent in June. The increase in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 3.4 percent) and more-processed items (up an annualized 2.7 percent).

The price index for food as a whole was up 3.5 percent over the 12 months ending in July. The 12-month increase in the aggregate reflects a 0.1 percent decline in the prices of less-processed items and a 5.0 percent increase in the prices of more-processed items.

Core goods prices down, services up

Prices for core goods fell an annualized 5.3 percent in July after decreasing an annualized 1.6 percent in June.

Among core goods, the price index for computer software and accessories (down an annualized 27.9 percent) had the largest negative impact, subtracting about 0.3 annualized percentage points from July’s core rate. At the other end of the spectrum, the price index for nonprescription drugs (up an annualized 25.7 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to July’s core rate.

For the 12 months ending in July, prices for core goods were up 1.1 percent, compared with a 1.7 percent increase over the 12 months ending in June.

Prices for core services, meanwhile, rose an annualized 5.7 percent in July after increasing an annualized 4.1 percent in June. Among components experiencing outsized changes, the price index for tax preparation services (down an annualized 43.4 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from July’s core rate. The price index for financial service charges, fees and commissions (up an annualized 66.5 percent) had the largest positive impact, contributing about 1.5 annualized percentage points to July’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 4.9 percent annualized rate in July, compared with an annualized 5.2 percent increase in June. Individually, the annualized increases were 5.2 percent for rent, 6.0 percent for OER and 2.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through July, the big three index was up 7.4 percent, compared with a 7.7 percent increase for the 12 months through June. The price index for core services as a whole rose 5.4 percent for the 12 months ending in July, compared with a 5.0 percent increase for the 12 months through June.