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Behind the Numbers: PCE Inflation Update, November 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 0.7 percent at an annualized rate in November, following a 2.4 percent annualized increase a month earlier. The price index for PCE excluding food and energy rose at a 1.8 percent annualized rate, up from a 1.4 percent rate a month earlier. Food prices rose, while prices for energy goods and services fell sharply.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.4 percent in November, up from an annualized 1.6 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, both the headline and core indexes have averaged annualized 1.5 percent rates of increase.

The 12-month trimmed mean inflation rate was 2.0 percent in November, up 0.1 percentage points from its level in October. The 12-month inflation rate for headline PCE declined to 1.8 percent from 2.0 percent, while the inflation rate for PCE excluding food and energy ticked up to 1.9 percent from 1.8 percent a month earlier.

Gasoline Prices Down Sharply

Prices for energy goods and services taken as a whole fell in November, led by a 4.1 percent decline in the price index for gasoline and other motor fuel. The drop in the gasoline index subtracted about 1.2 annualized percentage points off November’s headline inflation rate. Other energy components were mixed, with the price index for fuel oil falling 2.9 percent, while the price indexes for electricity services and natural gas services recorded small increases of 0.3 percent and 0.7 percent, respectively. The price index for energy goods and services taken as a whole fell 2.1 percent for the month.

The price index for gasoline is up 5.2 percent for the 12 months ending in November; it had been up 16.2 percent for the 12 months ending in October. Compared with November 2017, the price indexes for fuel oil and electricity are up 16.1 percent and 0.6 percent, respectively; over the same period, the price index for natural gas services is down 2.1 percent. The price index for energy goods and services as a whole is up 3.4 percent over the 12 months.

After a sharp decline in November, the price index for gasoline is likely to show an even sharper decline when PCE data for December are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 9.6 percent decrease in December, before seasonal adjustment. The typical seasonal pattern for December—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 2.6 percent decline, making the DOE data consistent with a roughly 7.0 percent seasonally adjusted decrease. A price decrease of that magnitude would subtract about 1.9 annualized percentage points off December’s headline PCE inflation rate.

Food Prices Rise

After a noticeable decline in October, the price index for food and beverages purchased for off-premises consumption rose an annualized 2.9 percent in November.

Underlying the increase in the aggregate were comparably-sized increases in prices of both less-processed and more-processed food items. The former rose an annualized 3.0 percent, while the latter rose an annualized 2.8 percent.

The price index for food as a whole is up 0.6 percent over the past 12 months. The increase reflects a 0.3 percent increase in the prices of less-processed items and a 0.7 percent increase in the prices of more-processed items.

Core Goods Prices Down, Services Prices Up

Prices for core goods fell at a 0.5 percent annualized rate in November after rising at a 0.6 percent rate a month earlier.

Among core goods, the price indexes for household linens (down an annualized 41.4 percent) and women’s and girls’ clothing (down an annualized 9.7 percent) had the largest negative impacts on headline inflation, combining to subtract about 0.3 annualized percentage points from November’s headline rate. At the other end of the spectrum, the price indexes for prescription drugs (up an annualized 6.1 percent) and used light trucks (up an annualized 26.6 percent) had the largest positive impacts on headline inflation, combining to contribute about 0.3 annualized percentage points to November’s headline rate.

For the 12 months ending in November, prices for core goods are down 0.4 percent; they had been down 0.6 percent for the 12 months ending in October.

Prices for core services, meanwhile, rose at a 2.5 percent annualized rate in November, following a 1.7 percent annualized increase in October. Among components experiencing outsized increases, the price index for the consumption expenditures of nonprofit institutions serving households (up an annualized 6.8 percent) had the biggest positive impact on all-items inflation, contributing around 0.2 annualized percentage points to November’s headline inflation rate. The price index for financial service charges, fees and commissions (down an annualized 11.9 percent) had the largest negative impact, subtracting about 0.4 annualized percentage points from November’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 3.8 percent annualized rate in November, following a 2.7 percent annualized rate in October. Individually, rent rose at a 4.3 percent annualized rate and OER at a 3.7 percent annualized rate, while dining out (more formally, “other purchased meals”) rose at a 3.5 percent annualized rate.

For the 12 months through November, the big three index is up 3.2 percent, compared with 3.1 percent for the 12 months through October. The price index for core services as a whole rose 2.6 percent for the 12 months ending in November, identical to its increase for the 12 months ending in October.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update