Skip to content

Behind the Numbers: PCE Inflation Update, June 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 1.5 percent annualized rate in June, similar to its increase in May. The price index for PCE excluding food and energy rose at a 3.0 percent annualized rate following a 1.9 percent annualized increase a month earlier. Energy prices fell sharply in June after a more modest decline in May. Food prices fell, led by a sharp decline in the prices of less-processed food items.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.4 percent in June following an annualized 1.8 percent a month earlier.

Over the six months ending in June, 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 1.5 percent.

The 12-month trimmed mean inflation rate was 2.0 percent in June, unchanged from May. The 12-month inflation rate for headline PCE held steady at 1.4 percent, while the 12-month inflation rate for PCE excluding food and energy ticked up to 1.6 percent from 1.5 percent.

The Annual Revision

Each year with the release of data for June, the Bureau of Economic Analysis incorporates the results of its annual revision to the National Income and Product Accounts. These revisions affect the underlying data that go into the headline and core PCE inflation rates as well as the Dallas Fed’s Trimmed Mean PCE inflation rate. This year’s revision extended back five years, affecting data from 2014 to the present.

The effects of the revision on both the trimmed mean and core inflation measures were relatively modest. Core inflation rates were revised down slightly from 2014 to about mid-2017, and up slightly over 2018. The revision had a negligible impact on the trimmed mean through 2017; in the second half of 2018, the revision raised 12-month trimmed mean inflation rates about 0.1 percentage points.

Both trimmed mean and core PCE 12-month inflation rates are now estimated to have reached 2.1 percent around mid-2018.

Gasoline Falls Sharply

The price index for gasoline and other motor fuel fell 3.6 percent in June after posting a 0.5 percent decline in May. Other energy components were also down, with the price indexes for fuel oil, electricity services and natural gas services falling 2.3 percent, 0.8 percent and 0.3 percent, respectively. Taken as a whole, the prices of energy goods and services fell 2.3 percent for the month.

The price index for gasoline is down 5.4 percent for the 12 months ending in June; it had been down 0.2 percent for the 12 months ending in May. Compared with June 2018, the price indexes for electricity and natural gas are down 0.3 percent and 2.1 percent, respectively, while the price index for fuel oil is down 5.6 percent. The price index for energy goods and services as a whole is down 3.4 percent over the 12 months.

After June’s sharp decline, the price index for gasoline is likely to record a healthy increase when PCE data for July are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 0.8 percent increase in July, before seasonal adjustment. The typical seasonal pattern for July—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 1.7 percent decline, making the DOE data consistent with a roughly 2.5 percent seasonally adjusted increase. A price increase of that magnitude would contribute about 0.7 annualized percentage points to July’s headline PCE inflation rate.

Food Prices Fall in June

The price index for food and beverages purchased for off-premises consumption fell an annualized 0.8 percent in June after increasing an annualized 3.4 percent in May.

Underlying the decline in the aggregate was a sharp decline in the prices of less-processed food items, which fell an annualized 7.6 percent. Prices for more-processed food items rose an annualized 2.0 percent.

The price index for food as a whole is up 1.1 percent over the 12 months ending in June. The 12-month increase reflects a 0.4 percent increase in the prices of less-processed items and a 1.4 percent increase in the prices of more-processed items.

Core Goods and Services Prices Up

Prices for core goods rose at a 2.9 percent annualized rate in June following an annualized 1.1 percent increase in May.

Among core goods, the price index for prescription drugs (down an annualized 7.5 percent) had the largest negative impact on core (ex-food-and-energy) inflation, subtracting about 0.3 annualized percentage points from June’s core rate. At the other end of the spectrum, the price index for jewelry (up an annualized 80.0 percent) had the largest positive impact on core inflation, contributing about 0.3 annualized percentage points to June’s core rate.

For the 12 months ending in June, prices for core goods are down 0.6 percent; they had been down 1.0 percent for the 12 months ending in May.

Prices for core services, meanwhile, rose at a 3.1 percent annualized rate in June. Among components experiencing outsized increases, the price index for the final consumption expenditures of nonprofit institutions serving households (up an annualized 9.2 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.3 annualized percentage points to June’s core inflation rate. The price index for air transportation (down an annualized 21.0 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from June’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 4.0 percent annualized rate in June following a 3.0 percent annualized increase in May. Individually, the annualized increases were 5.2 percent for rent, 3.8 percent for OER and 3.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through June, the big three index is up 3.4 percent, identical to its increase for the 12 months through May. The price index for core services as a whole rose 2.3 percent for the 12 months ending in June, identical to its increase for the 12 months through May.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update