Skip to content

Behind the Numbers: PCE Inflation Update, March 2019

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 2.4 percent at an annualized rate in March following a 1.3 percent annualized increase in February. The price index for PCE excluding food and energy rose at a 0.6 percent annualized rate following a 0.7 percent annualized increase a month earlier. Energy prices rose sharply in March, led by a 6.4 percent increase in the price index for gasoline and other motor fuel. Food prices also rose for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.9 percent in March following an annualized 2.3 percent a month earlier.

Over the six months ending in March, the trimmed mean averaged an annualized 2.0 percent rate of increase. Over the same period, the headline PCE and core indexes averaged annualized rates of increase of 1.1 percent and 1.4 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in March, up from 1.9 percent in February. The 12-month inflation rate for headline PCE rose to 1.5 percent from 1.3 percent a month earlier, while the inflation rate for PCE excluding food and energy declined to 1.6 percent from 1.7 percent a month earlier.

Gasoline Prices Up Sharply

The 6.4 percent increase in the price index for gasoline and other motor fuel was its biggest one-month gain since September 2017. The gasoline index alone contributed about 1.6 annualized percentage points to March’s headline inflation rate. The jump follows a 1.5 percent increase in February, which broke a string of three monthly declines in excess of 5 percent. Other energy components were mixed in March, with price indexes for fuel oil and electricity services rising 2.1 percent and 0.4 percent, respectively, while the price index for natural gas services declined 0.1 percent. The price index for energy goods and services taken as a whole rose 3.6 percent.

The price index for gasoline is up 0.9 percent for the 12 months ending in March; it had been down 9.8 percent for the 12 months ending in February. Compared with March 2018, the price index for fuel oil is up 2.1 percent, while the price indexes for electricity and natural gas services are down 0.6 percent and 2.2 percent, respectively. The price index for energy goods and services as a whole is up 0.3 percent over the 12 months.

March’s sizable increase in the price index for gasoline is likely to be followed by a comparable increase when PCE data for April are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 10.2 percent increase in April, before seasonal adjustment. The typical seasonal pattern for April—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 4.3 percent increase, making the DOE data consistent with a roughly 6.9 percent seasonally adjusted increase. A price increase of that magnitude would contribute about 1.6 annualized percentage points to April’s headline PCE inflation rates.

Food Prices Up

The price index for food and beverages purchased for off-premises consumption rose an annualized 2.9 percent in March. This follows an annualized 6.2 percent increase in February.

Underlying the increase in the aggregate was a sharp 6.5 percent annualized increase in the prices of less-processed food items. Prices for more-processed food items rose 1.6 percent at an annualized rate.

The price index for food as a whole is up 1.4 percent over the 12 months ending in March. The 12-month increase reflects a 1.4 percent increase in the prices of less-processed items and a 1.5 percent increase in the prices of more-processed items.

Core Goods Prices Fall Sharply, Services Prices Rise

Prices for core goods fell at a 4.7 percent annualized rate in March following a 4.0 percent annualized decline in February.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 25.3 percent) had the largest negative impact on headline inflation, subtracting about 0.4 annualized percentage points from March’s headline rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 7.4 percent) had the largest positive impact on headline inflation, contributing about 0.2 annualized percentage points to March’s headline rate.

For the 12 months ending in March, prices for core goods are down 1.0 percent; they had been down 0.7 percent for the 12 months ending in February.

Prices for core services, meanwhile, rose at a 2.2 percent annualized rate in March, identical to their rate of increase in February. Among components experiencing outsized increases, the price index for financial service charges, fees and commissions (up an annualized 11.5 percent) had the biggest positive impact on all-items inflation, contributing around 0.2 annualized percentage points to March’s headline inflation rate. The price index for air transportation services (down an annualized 21.4 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from March’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 March following a 4.1 percent annualized increase in February. Individually, rent rose at a 5.2 percent annualized rate—its sharpest rise since February 2007—and OER rose at a 3.9 percent annualized rate, while dining out (more formally, “other purchased meals”) rose at a 2.2 percent annualized rate.

For the 12 months through March, the big three index is up 3.3 percent, identical to its increase for the 12 months through February. The price index for core services as a whole rose 2.4 percent for the 12 months ending in March, down from 2.5 percent for the 12 months ending in February.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update