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Behind the Numbers: PCE Inflation Update, April 2018

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 2.7 percent at an annualized rate in April, following a negligible increase a month earlier. A sharp jump in gasoline prices made a significant positive contribution to April’s headline inflation rate, while the price index for food rose at its fastest one-month pace since March 2017. The price index for PCE excluding food and energy rose at a 1.9 percent annualized rate, identical to its rate of increase a month earlier. Prices for core goods rose after falling sharply in March, and prices for core services rose at a 2.1 percent annualized rate.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.7 percent in April, following an annualized 1.5 percent a month earlier.

Over the last six months, the trimmed mean has averaged an annualized 1.9 percent rate of increase. Over the same period, the headline index and the index excluding food and energy have averaged annualized rates of increase of 2.2 percent and 2.0 percent, respectively.

The 12-month trimmed mean inflation was 1.7 percent in April, identical to its level in March. Likewise, the 12-month inflation rates for headline PCE and for PCE excluding food and energy were unchanged from March, at 2.0 percent and 1.8 percent, respectively.

Note that Bureau of Economic Analysis revisions to recent months’ data, particularly January and February, lowered 6- and 12-month trimmed mean and core rates a touch in March. Thus, while 12-month trimmed mean and core inflation rates were unchanged from revised March levels, those revised March levels are both 0.1 percentage points lower than initially estimated. Likewise, March’s six-month trimmed mean and core inflation rates have been revised down 0.1 percentage points from initial estimates.

Gasoline Prices Rebound

Prices for energy goods and services taken as a whole rose in April, led by a 3.0 percent increase in the price index for gasoline and other motor fuel. April’s increase in gasoline prices partly reversed a sharp 4.9 percent decline in March. The gasoline and motor fuel index alone contributed roughly 0.8 annualized percentage points to April’s headline inflation rate.

Among the other major energy components, the price index for fuel oil rose 2.7 percent, while the price indexes for natural gas services and electricity services fell 0.4 percent and 0.6 percent, respectively. The price index for energy goods and services taken as a whole rose 1.5 percent for the month.

The price index for gasoline is up 14.2 percent for the 12 months ending in April; it had been up 12.2 percent for the 12 months ending in March. Compared with April 2017, price indexes are up 18.9 percent for fuel oil, 0.6 percent for natural gas services and 1.0 percent for electricity services. Over the same period, the price index for energy goods and services as a whole is up 8.4 percent.

After April’s substantial increase, the price index for gasoline is likely to show a smaller gain when PCE data for May are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 4.8 percent increase in May, before seasonal adjustment. The typical seasonal pattern for May—what we would expect given normal changes in supply-and-demand conditions—amounts to roughly a 4.1 percent increase, making the DOE data consistent with just a 0.7 percent seasonally adjusted increase. Given gasoline’s weight in the PCE basket, a price increase of that magnitude would contribute about 0.2 annualized percentage points to May’s headline PCE inflation rate.

Food Prices Post Another Solid Increase

The price index for food and beverages purchased for off-premises consumption rose an annualized 3.6 percent in April; this follows an annualized increase of 2.1 percent a month earlier.

Underlying the increase in the aggregate were increases in prices of both less-processed and more-processed food items. Prices for less-processed food items rose at a 9.8 percent annualized rate for the month, while prices for more-processed items—which make up nearly three-quarters of food expenditures—rose at a 1.3 percent annualized rate.

The price index for food as a whole is up 0.5 percent over the past 12 months. The increase reflects a 1.4 percent increase in the prices of less-processed items and a 0.1 percent increase in the prices of more-processed items.

Core Goods Prices Rise; Services Prices Cool

Prices for core goods rose solidly in April, increasing 1.2 percent at an annualized rate. This follows a sharp 2.5 percent annualized decline in March.

Among core goods, the price index for women’s and girls’ clothing (up an annualized 15.9 percent) had the largest positive impact on headline inflation, contributing about 0.2 annualized percentage points to April’s headline rate. As is often the case with volatile goods prices, the same component had the largest negative impact a month earlier. At the other end of the spectrum, the price index for new light trucks (down an annualized 6.4 percent) had the largest negative impact on headline inflation, subtracting about 0.2 annualized percentage points off April’s headline rate.

For the 12 months ending in April, prices for core goods are down 0.6 percent; they had been down 0.9 percent for the 12 months ending in March.

Prices for core services, meanwhile, rose at a 2.1 percent annualized rate in April, following a 3.4 percent annualized increase in March. Among core services components, the price index for the final consumption expenditures of nonprofit institutions serving households (down an annualized 6.4 percent) had the biggest negative impact on all-items inflation, subtracting roughly 0.3 annualized percentage points from April’s headline inflation rate. The price index for tax preparation and other related services (up 7.9 percent before annualization) had the largest positive impact, contributing about 0.2 annualized percentage points to April’s headline inflation 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 3.7 percent annualized rate in April, following a 3.2 percent rate in March. Individually, rent rose at a 4.7 percent annualized rate and OER at a 4.0 percent annualized rate, while dining out (more formally, “other purchased meals”) rose at a 2.1 percent annualized rate.

For the 12 months through April, the big three index is up 3.2 percent, identical to its increase for the 12 months through March. The price index for core services as a whole rose 2.7 percent for the 12 months ending in April, down from 2.8 percent for the 12 months ending in March.

—Jim Dolmas
May 31, 2018

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update