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Behind the Numbers: PCE Inflation Update, September 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 effectively unchanged in September, declining at a negligible 0.1 percent annualized rate, following a similarly slight 0.3 percent annualized increase in August. The price index for PCE excluding food and energy was also close to unchanged, rising at a 0.6 percent annualized rate following a 1.6 percent annualized increase a month earlier. Energy prices fell sharply for a second straight month, while food prices were effectively unchanged.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.6 percent in September following an annualized 1.8 percent a month earlier.

Over the six months ending in September, the trimmed mean averaged an annualized 2.2 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 1.6 percent and 2.1 percent, respectively.

The 12-month trimmed mean inflation rate was 2.1 percent in September, unchanged from August. The 12-month inflation rate for headline PCE ticked down to 1.3 percent from 1.4 percent in August, while the 12-month inflation rate for PCE excluding food and energy ticked down to 1.7 percent from 1.8 percent in August.

Gasoline Prices Decline Again

The price index for gasoline and other motor fuel fell 2.4 percent in September after falling 3.4 percent in August. The gasoline price index alone subtracted about 0.6 annualized percentage points from September’s headline inflation rate. Among other energy components, the price indexes for fuel oil and natural gas services declined 0.8 percent and 0.7 percent, respectively, while the price index for electricity services was unchanged. Taken as a whole, the prices of energy goods and services fell 1.3 percent for the month.

The price index for gasoline is down 8.2 percent for the 12 months ending in September; it had been down 7.0 percent for the 12 months ending in August. Compared with September 2018, the price indexes for fuel oil and natural gas are down 8.5 percent and 2.7 percent, respectively, while the price index for electricity is up 0.6 percent. The price index for energy goods and services as a whole is down 4.8 percent over the 12 months.

The price index for gasoline is likely to show a rebound when PCE data for October are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 1.9 percent increase in October, before seasonal adjustment. The typical seasonal pattern for October—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 2.0 percent decrease, making the DOE data consistent with a roughly 3.9 percent seasonally adjusted rise. A price increase of that magnitude would contribute about 1.0 annualized percentage points to October’s headline PCE inflation rate.

Food Prices Flat

The price index for food and beverages purchased for off-premises consumption was effectively unchanged in September, rising a scant 0.5 percent annualized. The negligible increase follows a 2.1 percent annualized decline in August.

Underlying the meager change in the aggregate were roughly offsetting movements in the prices of less-processed and more-processed food items. The former fell an annualized 1.4 percent, while the latter—which makes up a larger share of food expenditure—rose an annualized 1.3 percent.

The price index for food as a whole is up 0.8 percent over the 12 months ending in September. The 12-month increase reflects a 0.3 percent increase in the prices of less-processed items and a 1.0 percent increase in the prices of more-processed food items.

Core Goods Prices Decline, Services Prices Up

Prices for core goods fell sharply in September, declining an annualized 3.1 percent for the month

Among core goods, the price index for women’s and girls’ clothing (down an annualized 18.7 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from September’s core inflation rate. At the other end of the spectrum, the price index for men’s and boys’ clothing (up an annualized 25.5 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to September’s core rate.

For the 12 months ending in September, prices for core goods are down 0.4 percent, compared with a 0.2 percent decline for the 12 months ending in August.

Prices for core services, meanwhile, rose at a 1.8 percent annualized rate in September, after recording a 2.0 percent annualized increase in August. Among components experiencing outsized increases, the price index for hotels and motels (up an annualized 31.8 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.3 annualized percentage points to September’s core inflation rate. The price index for communication services (down an annualized 8.1 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from September’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 3.4 percent annualized rate in September, up from a 2.7 percent rate of increase in August. Individually, the annualized increases were 4.3 percent for rent, 3.3 percent for OER and 2.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through September, the big three index is up 3.5 percent, compared with a 3.4 percent increase for the 12 months through August. The price index for core services as a whole rose 2.3 percent for the 12 months ending in September, down from a 2.4 percent increase for the 12 months through August.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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