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Behind the Numbers: PCE Inflation Update, May 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 at a 2.0 percent annualized rate in May following a 3.9 percent annualized increase in April. The price index for PCE excluding food and energy rose at a 2.3 percent annualized rate following a 3.0 percent annualized increase a month earlier. Energy prices fell modestly in May after sharp increases in the prior two months. Food prices rose, led by price increases for more-processed food items.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.2 percent in May following an annualized 2.9 percent a month earlier.

Over the six months ending in May, the trimmed mean averaged an annualized 2.0 percent rate of increase. Over the same period, the headline PCE and core indexes both averaged annualized rates of increase of 1.6 percent.

The 12-month trimmed mean inflation rate was 2.0 percent in May, unchanged from April. The 12-month inflation rate for headline PCE ticked down to 1.5 percent from 1.6 percent a month earlier, while the 12-month inflation rate for PCE excluding food and energy was unchanged at 1.6 percent.

Gasoline Falls Modestly

The price index for gasoline and other motor fuel fell 0.5 percent in May after posting increases in the neighborhood of 6 percent in each of the prior two months. Other energy components were also down, with the price indexes for fuel oil, natural gas services and electricity services falling 0.3 percent, 1.0 percent and 0.8 percent, respectively. Taken as a whole, the prices of energy goods and services fell 0.6 percent.

The price index for gasoline is up 1.2 percent for the 12 months ending in May; it had been up 3.4 percent for the 12 months ending in April. Compared with May 2018, the price indexes for natural gas and electricity are down 3.0 percent and 0.8 percent, respectively, while the price index for fuel oil is up 1.1 percent. The price index for energy goods and services as a whole is up a negligible 0.1 percent over the 12 months.

After a modest drop in May, the price index for gasoline is likely to record a much larger decline when PCE data for June are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 4.8 percent decline in June, before seasonal adjustment. The typical seasonal pattern for June—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 1.3 percent decline, making the DOE data consistent with a roughly 3.5 percent seasonally adjusted decline. A price decrease of that magnitude would subtract about 0.9 annualized percentage points off June’s headline PCE inflation rate.

Food Prices Rise

The price index for food and beverages purchased for off-premises consumption rose an annualized 3.5 percent in May after an annualized 4.0 percent decline in April.

Underlying the decline in the aggregate was a sharp increase in the prices of more-processed food items, which rose an annualized 4.5 percent. Prices for less-processed food items rose an annualized 0.9 percent.

The price index for food as a whole is up 1.3 percent over the 12 months ending in May. The 12-month increase reflects a 0.9 percent increase in the prices of less-processed items and a 1.5 percent increase in the prices of more-processed items.

Core Goods and Services Prices Up

Prices for core goods rose at a 1.0 percent annualized rate in May following annualized declines averaging 3.4 percent over the prior three months.

Among core goods, the price index for men’s and boys’ clothing (down an annualized 9.0 percent) had the largest negative impact on core (ex-food-and-energy) inflation, subtracting about 0.1 annualized percentage points from May’s core rate. At the other end of the spectrum, the price index for newspapers and periodicals (up an annualized 30.4 percent) had the largest positive impact on core inflation, contributing about 0.1 annualized percentage points to May’s core rate.

For the 12 months ending in May, prices for core goods are down 1.1 percent; they had been down 1.2 percent for the 12 months ending in April.

Prices for core services, meanwhile, rose at a 2.7 percent annualized rate in May. Among components experiencing outsized increases, the price index for financial service charges, fees and commissions (up an annualized 12.6 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.3 annualized percentage points to May’s core inflation rate. The price index for spectator sports (down an annualized 31.9 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from May’s core 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 3.0 percent annualized rate in May following a 4.4 percent annualized increase in April. Individually, rent rose at a 2.9 percent annualized rate, OER rose at a 3.2 percent annualized rate, and dining out (more formally, “other purchased meals”) rose at a 2.6 percent annualized rate.

For the 12 months through May, the big three index is up 3.4 percent, identical to its increase for the 12 months through April. The price index for core services as a whole rose 2.5 percent for the 12 months ending in May, also identical to its increase for the 12 months through April.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update