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Behind the Numbers: PCE Inflation Update, March 2020

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 fell an annualized 3.2 percent in March after increasing an annualized 1.0 percent in February. The price index for PCE excluding food and energy fell at a 1.0 percent annualized rate, compared with an annualized 1.9 percent increase a month earlier. Prices for energy goods and services declined across the board, while food prices rose sharply.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.1 percent in March, compared with an annualized 1.5 percent a month earlier.

Over the six months ending in March, the trimmed mean averaged an annualized 1.8 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 1.0 percent and 1.4 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in March, unchanged from February. The 12-month inflation rate for headline PCE fell to 1.3 percent in March from 1.8 in February, while the 12-month inflation rate for PCE excluding food and energy ticked down to 1.7 percent from 1.8 percent a month earlier.

Energy Prices Drop Sharply in March

The price index for gasoline and other motor fuel fell 10.4 percent in March after falling 3.3 percent in February. The gasoline price index alone subtracted about 2.4 annualized percentage points from March’s headline inflation rate. Among other energy components, the price index for fuel oil fell 13.7 percent, while the price indexes for electricity services and natural gas services fell 0.2 percent and 1.4 percent, respectively. Taken as a whole, the prices of energy goods and services declined 6.1 percent for the month.

The price index for gasoline is down 10.6 percent for the 12 months ending in March; it had been up 6.3 percent for the 12 months ending in February. Compared with March 2019, the price indexes for electricity and natural gas are down 0.7 percent and 4.5 percent, respectively, while the price index for fuel oil is down 20.6 percent. The price index for energy goods and services as a whole is down 6.7 percent over the 12 months.

After March’s 10.4 percent decline, the price index for gasoline is likely to show an even larger drop when PCE data for April are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 18.7 percent decrease in April, before seasonal adjustment. The typical seasonal pattern for April—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 5.2 percent increase, making the DOE data consistent with a roughly 23.9 percent seasonally adjusted decline. A price decline of that magnitude—which would be the largest since November 2008—would subtract about 5.3 annualized percentage points from April’s headline PCE inflation rate.

Food Prices Post Brisk Increase

The price index for food and beverages purchased for off-premises consumption rose at a 7.0 percent annualized rate in March, after increasing at a 5.5 percent rate in February. Underlying the increase in the aggregate were sharp increases in the prices of both more-processed food items (up an annualized 7.5 percent) and less-processed food items (up an annualized 5.7 percent).

The price index for food as a whole is up 1.1 percent over the 12 months ending in March. The 12-month increase in the aggregate reflects a 0.6 percent increase in the prices of less-processed items and a 1.3 percent increase in the prices of more-processed items.

Core Goods Down, Services Prices Flat in March

Prices for core goods fell a sharp annualized 5.2 percent in March, after rising an annualized 0.5 percent in February.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 30.2 percent) had the largest negative impact on core inflation, subtracting about 0.5 annualized percentage points from March’s core rate. At the other end of the spectrum, the price index for tobacco (up an annualized 12.5 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to March’s core rate.

For the 12 months ending in March, prices for core goods are down 0.7 percent, compared with a 0.6 percent decline for the 12 months ending in February.

Prices for core services, meanwhile, were effectively unchanged in March, rising at a negligible 0.3 percent annualized rate, after recording a 2.2 percent annualized increase in February. Among components experiencing outsized changes, the price index for air transportation services (down an annualized 77.0 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 1.1 annualized percentage points from March’s core rate. The price index for financial services charges, fees and commissions (up an annualized 32.4 percent) had the largest positive impact, contributing about 0.9 annualized percentage points to March’s core 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 March, compared with a 3.1 percent rate of increase in February. Individually, the annualized increases were 3.7 percent for rent, 3.2 percent for OER and 2.1 percent for dining out (more formally, “other purchased meals”).

For the 12 months through March, the big three index is up 3.3 percent, identical to its increase for the 12 months through February. The price index for core services as a whole rose 2.4 percent for the 12 months ending in March, down from 2.6 percent for the 12 months through February.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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