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Behind the Numbers: PCE Inflation Update, August 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 was close to unchanged in August, rising at a scant 0.4 percent annualized rate, following a 2.9 percent annualized increase in July. The price index for PCE excluding food and energy rose at a 1.7 percent annualized rate following a 2.5 percent annualized increase a month earlier. Energy prices fell sharply in August, more than reversing the July increase. Food prices also 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 1.1 percent in August following an annualized 2.7 percent a month earlier.

Over the six months ending in August, the trimmed mean, headline and core indexes all averaged an annualized 2.1 percent rate of increase.

The 12-month trimmed mean inflation rate was 2.0 percent in August, unchanged from July. The 12-month inflation rate for headline PCE was unchanged at 1.4 percent, while the 12-month inflation rate for PCE excluding food and energy ticked up to 1.8 percent from 1.7 percent in July.

Gasoline Prices Reverse Course

The price index for gasoline and other motor fuel fell 3.4 percent in August after posting a 2.5 percent increase in July. The gasoline price index alone subtracted about one annualized percentage point from August’s headline inflation rate. Other energy components were mixed, with the price indexes for fuel oil and electricity services down 0.9 percent and 0.3 percent, respectively, while the price index for natural gas services rose 0.1 percent. Taken as a whole, the prices of energy goods and services fell 2.0 percent for the month.

The price index for gasoline is down 7.0 percent for the 12 months ending in August; it had been down 3.3 percent for the 12 months ending in July. Compared with August 2018, the price indexes for fuel oil, natural gas and electricity are down 8.4 percent, 3.5 percent and 0.1 percent, respectively. The price index for energy goods and services as a whole is down 4.4 percent over the 12 months.

The price index for gasoline is likely to record a further sharp decline when PCE data for September are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 1.4 percent decrease in September, before seasonal adjustment. The typical seasonal pattern for September—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 1.5 percent increase, making the DOE data consistent with a roughly 2.9 percent seasonally adjusted decline. A price decrease of that magnitude—slightly smaller than the decline we saw in August—would subtract about 0.8 annualized percentage points from September’s headline PCE inflation rate.

Food Prices Fall

The price index for food and beverages purchased for off-premises consumption fell an annualized 2.1 percent in August, after falling an annualized 0.7 percent in July.

Underlying the decline in the aggregate was a sharp decline in the prices of less-processed food items, which fell an annualized 6.7 percent. Prices for more-processed food items were close to unchanged, declining an annualized 0.2 percent.

The price index for food as a whole is up 0.8 percent over the 12 months ending in August. The 12-month increase reflects a 1.2 percent increase in the prices of more-processed items and a 0.3 percent decline in the prices of less-processed food items.

Core Goods Prices Flat, Services Prices Up

Prices for core goods were close to unchanged in August, rising an annualized 0.2 percent for the month.

Among core goods, the price index for jewelry (down an annualized 40.0 percent) had the largest negative impact on core inflation, subtracting about a quarter of an annualized percentage point from August’s core inflation rate. At the other end of the spectrum, the price index for nonprescription drugs (up an annualized 21.4 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to August’s core rate.

For the 12 months ending in August, prices for core goods are down 0.2 percent, up from a 0.6 percent decline for the 12 months ending in July.

Prices for core services, meanwhile, rose at a 2.2 percent annualized rate in August, after recording a 3.4 percent annualized increase in July. Among components experiencing outsized increases, the price index for the final consumption expenditures of nonprofit institutions serving households (up an annualized 20.0 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.6 annualized percentage points to August’s core inflation rate. The price index for hotels and motels (down an annualized 24.7 percent) had the largest negative impact, subtracting about a quarter of an annualized percentage point from August’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 2.7 percent annualized rate in August, similar to its rate of increase in July. Individually, the annualized increases were 2.8 percent for rent, 2.7 percent for OER and 2.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through August, the big three index is up 3.4 percent, identical to its increase for the 12 months through July. The price index for core services as a whole rose 2.4 percent for the 12 months ending in August, identical to its increase for the 12 months through July.

 

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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