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Behind the Numbers: PCE Inflation Update, April 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 3.8 percent at an annualized rate in April following a 2.5 percent annualized increase in March. The price index for PCE excluding food and energy rose at a 3.0 percent annualized rate following a 0.6 percent annualized increase a month earlier. Much as they did in March, energy prices rose sharply in April, led by a 5.6 percent increase in the price index for gasoline and other motor fuel. Food prices fell sharply for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.9 percent in April following an annualized 2.0 percent a month earlier.

Over the six months ending in April, the trimmed mean averaged an annualized 2.1 percent rate of increase. Over the same period, the headline PCE and core indexes averaged annualized rates of increase of 1.3 percent and 1.5 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in April, up from 1.9 percent in March. The 12-month inflation rate for headline PCE rose to 1.5 percent from 1.4 percent a month earlier, while the inflation rate for PCE excluding food and energy rose to 1.6 percent from 1.5 percent a month earlier.

Gasoline Prices Up Sharply Again

The 5.6 percent increase in the price index for gasoline and other motor fuel follows a 6.4 percent gain in March. The gasoline index alone contributed about 1.4 annualized percentage points to April’s headline inflation rate. Other energy components were mixed in April, with the price index for fuel oil rising 1.3 percent, while the price index for natural gas services declined 0.8 percent. The price index for electricity services was unchanged. Taken as a whole, the prices of energy goods and services rose 2.9 percent.

The price index for gasoline is up 3.4 percent for the 12 months ending in April; it had been up 0.9 percent for the 12 months ending in March. Compared with April 2018, the price indexes for fuel oil and electricity are up 0.7 percent and 0.1 percent, respectively, while the price index for natural gas services is down 2.6. The price index for energy goods and services as a whole is up 1.7 percent over the 12 months.

After sizable increases in March and April, the price index for gasoline is likely to record a relatively benign increase 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 3.1 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 a roughly 2.9 percent increase, making the DOE data consistent with a roughly 0.2 percent seasonally adjusted increase. A price increase of that magnitude would have a negligible impact on May’s headline PCE inflation rate.

Food Prices Down

The price index for food and beverages purchased for off-premises consumption fell an annualized 4.0 percent in April, the index’s steepest one-month decline since May 2016. The decline follows an annualized 2.9 percent increase in March.

Underlying the decline in the aggregate were declines in the prices of both less-processed and more-processed food items. Prices for less-processed food items fell an annualized 2.8 percent, while prices for more-processed items fell an annualized 4.5 percent.

The price index for food as a whole is up 0.8 percent over the 12 months ending in April. The 12-month increase reflects a 0.4 percent increase in the prices of less-processed items and a 1.0 percent increase in the prices of more-processed items.

Core Services Prices Up Sharply, Goods Prices Down

Prices for core goods fell at a 2.4 percent annualized rate in April following annualized declines in excess of 4 percent in February and March. Over the three months, core goods prices declined in total 0.9 percent; rounded to one decimal place, that’s their biggest three-month decline since early 2003. (Rounded to two decimal places, the recent decline is the largest three-month drop since the beginning of the series in 1959.)

Among core goods, the price index for computer software and accessories (down an annualized 40.3 percent) had the largest negative impact on headline inflation, subtracting about 0.3 annualized percentage points from April’s headline rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 9.3 percent) had the largest positive impact on headline inflation, contributing about 0.2 annualized percentage points to April’s headline rate.

For the 12 months ending in April, prices for core goods are down 1.3 percent; they had been down 1.0 percent for the 12 months ending in March.

Prices for core services, meanwhile, rose at a 4.8 percent annualized rate in April, their biggest one-month increase since October 2009. Among components experiencing outsized increases, the price index for financial service charges, fees and commissions (up an annualized 34.6 percent) had the biggest positive impact on all-items inflation, contributing around 0.7 annualized percentage points to April’s headline inflation rate. The price index for legal services (down an annualized 13.0 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from 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 4.4 percent annualized rate in April following a 3.8 percent annualized increase in March. Individually, rent rose at a 5.5 percent annualized rate, OER rose at a 4.1 percent annualized rate, and dining out (more formally, “other purchased meals”) rose at a 4.2 percent annualized rate.

For the 12 months through April, the big three index is up 3.4 percent, up from 3.3 percent for the 12 months through March. The price index for core services as a whole rose 2.5 percent for the 12 months ending in April, up from 2.3 percent for the 12 months ending in March.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update