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Behind the Numbers: PCE Inflation Update, April 2017

This update, prepared by Dallas Fed Senior Economist Jim Dolmas, provides an in-depth analysis of the latest personal consumption expenditures (PCE) inflation data. Updates will be posted monthly, following the release of the official PCE data by the Bureau of Economic Analysis. NOTE: Terms in bold are defined in the Inflation Update Glossary.

The headline, or all-items, PCE price index rose at a 2.3 percent annualized rate in April after falling at a 2.7 percent annualized rate in March. The price index for PCE excluding food and energy rose at a 1.8 percent annualized rate, with prices for core goods falling at a 2.4 percent annualized rate, and prices for core services rising at a 3.3 percent annualized rate. Energy prices rose 1.0 percent for the month (not annualized), reflecting in part a 1.2 percent increase in the price index for gasoline and other motor fuel. Food prices rose at a 2.7 percent annualized rate, their third consecutive monthly increase.

The Dallas Fed’s trimmed mean PCE inflation rate was an annualized 1.9 percent in April, following a 0.7 percent annualized rate in March.

The 12-month trimmed mean inflation rate ticked down to 1.7 percent from 1.8 percent a month earlier. The 12-month headline inflation rate declined to 1.7 percent from 1.9 percent, while the 12-month inflation rate for PCE excluding food and energy ticked down to 1.5 percent from 1.6 percent.

Energy Prices Rise in April, Set for Decline in May

The price index for gasoline (and other motor fuel) rose 1.2 percent in April, in line with our expectation in last month’s Inflation Update. Gasoline added about a quarter of an annualized percentage point to April’s headline inflation rate, in the sense that a price index of all items apart from gasoline would have risen at an annualized rate closer to 2 percent in April, rather than the 2.3 percent rate recorded by the all-items index.

Among other energy goods and services, the price index for fuel oil fell 0.3 percent, while the price indexes for natural gas services and electricity services rose 2.2 percent and 0.6 percent, respectively.

The price index for energy goods and services is up 10.2 percent for the 12 months ending in April. Over the same period, the price index for gasoline and other motor fuel rose 15.2 percent, the price index for fuel oil rose 22.1 percent, and the price index for natural gas services rose 13.6 percent. The price index for electricity services, which is generally much less volatile than the other major energy components, rose 2.5 percent.

The price index for gasoline and other motor fuel should show a sharp decline when PCE data for May are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track to decline roughly 1.1 percent in May. Those DOE data are not seasonally adjusted, however. The typical seasonal pattern for May—what we would expect given normal changes in supply and demand conditions—is roughly a 5.4 percent increase, making the DOE data consistent with a 6.5 percent seasonally adjusted decline. A drop of that size would be comparable to the decline we saw in March (6.1 percent) that subtracted roughly 1.5 annualized percentage points off that month’s headline inflation rate.

Food Prices Post Third Significant Monthly Gain

Food prices rose 2.7 percent at an annualized rate in April. This follows annualized increases of 4.6 percent in March and 1.8 percent in February. Food prices’ 3.0 percent average annualized rate of increase over those three months is the highest for a three-month period since mid-2014.

Prices for less-processed items, which rose at a 9.0 percent annualized rate, accounted for most of April’s increase. Prices for more-processed food items were close to unchanged for the month, rising at an annualized rate of just 0.4 percent.

The price index for food as a whole is down 0.6 percent over the past 12 months, as prices for less-processed items fell 1.2 percent while prices for more-processed items fell 0.4 percent.

Core Goods Prices Decline, Core Services Rebound

Prices for core goods fell in April, declining by an annualized 2.4 percent. This follows an annualized 4.6 percent decline in March. Among core goods, the price indexes for prescription drugs (down roughly 10 percent at an annualized rate) and men’s and boys’ clothing (down roughly 22 percent at an annualized rate) had the biggest negative impacts on headline inflation, combining to subtract roughly 0.7 annualized percentage points off April’s headline rate. At the other end of the spectrum, the price index for tobacco products rose at an annualized rate of roughly 64 percent and added about 0.4 annualized percentage points to April’s headline inflation rate.

For the 12 months ending in April, prices for core goods are down 0.7 percent; they had been down 0.4 percent on a 12-month basis through March.

Prices for core services, meanwhile, rose at a 3.3 percent annualized rate in April. This follows a rare decline (by an annualized 0.5 percent) in March. Some of the core services components that posted the most outsized declines in March either rebounded or registered less-steep declines in April. The price index for the consumption expenditures of nonprofit institutions serving households rose at a 17.3 percent annualized rate in April after declining at an 11.2 percent rate in March; the price index for hotel and motel services rose at a 33.5 percent annualized rate in April after declining at a 29.2 percent rate in March. The price index for communication services, which had declined an annualized 33.1 percent in March, fell an annualized 5.5 percent in April.

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 3.0 percent annualized rate in April, up from a 2.3 percent rate in March. Individually, rent rose at a 3.7 percent annualized rate, OER rose at a 2.7 percent annualized rate, and dining out (more formally, “other purchased meals”) rose at a 3.2 percent annualized rate.

For the 12 months through April, the big three index is up 3.3 percent, identical to its increase for the 12 months through March. The price index for core services as a whole rose 2.3 percent for the 12 months ending in April, identical to the index’s 12-month increase through March.

—Jim Dolmas
May 30, 2017

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update