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Behind the Numbers: PCE Inflation Update, July 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 2.6 percent annualized rate in July following a 1.4 percent annualized increase in June. The price index for PCE excluding food and energy rose at a 2.2 percent annualized rate following a 3.0 percent annualized increase a month earlier. Energy prices rose in July after falling sharply in June. Food prices fell, led by a decline in the prices of more-processed food items.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.6 percent in July following an annualized 2.3 percent a month earlier.

Over the six months ending in July, the trimmed mean averaged an annualized 2.2 percent rate of increase. Over the same period, the headline PCE and core indexes averaged annualized rates of increase of 2.1 percent and 1.7 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in July, unchanged from June. The 12-month inflation rate for headline PCE ticked up to 1.4 percent from 1.3 percent in June, while the 12-month inflation rate for PCE excluding food and energy was unchanged at 1.6 percent.

Gasoline Prices Up

The price index for gasoline and other motor fuel rose 2.5 percent in July after posting a 3.6 percent decline in June. Other energy components were mixed, with the price indexes for fuel oil and electricity services both rising 0.6 percent and the price index for natural gas services declining 1.8 percent. Taken as a whole, the prices of energy goods and services rose 1.4 percent for the month.

The price index for gasoline is down 3.3 percent for the 12 months ending in July; it had been down 5.4 percent for the 12 months ending in June. Compared with July 2018, the price indexes for fuel oil and natural gas are down 6.0 percent and 2.9 percent, respectively, while the price index for electricity is up 0.5 percent. The price index for energy goods and services as a whole is down 2.1 percent over the 12 months.

After July’s increase, the price index for gasoline is likely to record a sharp decline when PCE data for August are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 4.3 percent decrease in August, before seasonal adjustment. The typical seasonal pattern for August—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 0.8 percent decline, making the DOE data consistent with a roughly 3.5 percent seasonally adjusted decline. A price decrease of that magnitude—comparable to the decline we saw in June—would subtract about 0.9 annualized percentage points off August’s headline PCE inflation rate.

Food Prices Fall Again

The price index for food and beverages purchased for off-premises consumption fell an annualized 0.7 percent in July, similar to their decline in June.

Underlying the decline in the aggregate was a sharp decline in the prices of more-processed food items, which fell an annualized 1.9 percent. Prices for less-processed food items rose an annualized 2.4 percent.

The price index for food as a whole is up 0.9 percent over the 12 months ending in July. The 12-month increase reflects a 1.2 percent increase in the prices of more-processed items and effectively unchanged prices for less-processed food items.

Core Goods Prices Flat, Services Prices Up

Prices for core goods were effectively unchanged in July following an annualized 2.8 percent increase in June.

Among core goods, the price index for computer software and accessories (down an annualized 37.3 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from July’s core rate. At the other end of the spectrum, the price index for women’s and girls’ clothing (up an annualized 13.1 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to July’s core rate.

For the 12 months ending in July, prices for core goods are down 0.6 percent, identical to their decline for the 12 months ending in June.

Prices for core services, meanwhile, rose at a 2.9 percent annualized rate in July, similar to their rate of increase in June. Among components experiencing outsized increases, the price index for nonprofit hospital services (up an annualized 4.0 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.2 annualized percentage points to July’s core inflation rate. No core service component had more than a negligible negative impact on July’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 2.9 percent annualized rate in July following a 4.0 percent annualized increase in June. Individually, the annualized increases were 3.4 percent for rent, 3.0 percent for OER and 2.4 percent for dining out (more formally, “other purchased meals”).

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

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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