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Behind the Numbers: PCE Inflation Update, April 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 5.5 percent in April after declining an annualized 2.7 percent in March. The price index for PCE excluding food and energy fell at a 4.6 percent annualized rate, compared with an annualized 0.6 percent decrease a month earlier. Prices for energy goods and services declined sharply, while food prices rose at their fastest rate since the early 1970s.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.4 percent in April, compared with an annualized 1.2 percent a month earlier.

Over the six months ending in April, 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 −0.3 percent and 0.3 percent, respectively.

The 12-month trimmed mean inflation rate was 1.9 percent in April, down from 2.0 percent in March. The 12-month inflation rate for headline PCE fell to 0.5 percent in April from 1.3 in March, while the 12-month inflation rate for PCE excluding food and energy fell to 1.0 percent from 1.7 percent a month earlier.

Gasoline, Fuel Oil Prices Drop Sharply

The price index for gasoline and other motor fuel fell 20.4 percent in April after falling 10.4 percent in March. The gasoline price index alone subtracted about 3.8 annualized percentage points from April’s headline inflation rate. Among other energy components, the price index for fuel oil fell 15.6 percent, while the price indexes for electricity services and natural gas services rose 0.1 percent and 0.2 percent, respectively. Taken as a whole, the prices of energy goods and services declined 9.2 percent for the month.

The price index for gasoline is down 32.6 percent for the 12 months ending in April; it had been down 10.6 percent for the 12 months ending in March. Compared with April 2019, the price indexes for electricity and natural gas are down 0.6 percent and 3.6 percent, respectively, while the price index for fuel oil is down 33.9 percent. The price index for energy goods and services as a whole is down 17.6 percent over the 12 months.

After April’s 20.4 percent decline, the price index for gasoline is likely to show a much smaller drop when PCE data for May are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 1.1 percent increase in May, before seasonal adjustment. But the typical seasonal pattern for May—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 3.4 percent increase, making the DOE data consistent with a roughly 2.3 percent seasonally adjusted decline. A price decline of that magnitude would subtract about 0.5 annualized percentage points from May’s headline PCE inflation rate.

Food Prices Post Decades-High Gain

The price index for food and beverages purchased for off-premises consumption rose at a 33.3 percent annualized rate in April after increasing at a 7.0 percent rate in March. The increase is the largest for the series since 1974. Underlying the increase in the aggregate were sharp increases in the prices of both more-processed food items (up an annualized 27.8 percent) and less-processed food items (up an annualized 48.1 percent).

The price index for food as a whole is up 3.9 percent over the 12 months ending in April. The 12-month increase in the aggregate reflects a 4.2 percent increase in the prices of less-processed items and a 3.8 percent increase in the prices of more-processed items.

Core Goods, Services Prices Down in April

Prices for core goods fell a sharp annualized 6.7 percent in April after declining an annualized 5.2 percent in March.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 48.9 percent) had the largest negative impact on core inflation, subtracting about 0.7 annualized percentage points from April’s core rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 7.5 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to April’s core rate.

For the 12 months ending in April, prices for core goods are down 1.1 percent, compared with a 0.7 percent decline for the 12 months ending in March.

Prices for core services, meanwhile, declined an annualized 4.0 percent in April after recording a small 0.9 percent annualized increase in March. Among components experiencing outsized changes, the price index for financial services charges, fees and commissions (down an annualized 54.9 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 2.7 annualized percentage points from April’s core rate. The price index for motor vehicle leasing (up an annualized 16.9 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.1 annualized percentage points to April’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 2.4 percent annualized rate in April, compared with a 3.1 percent rate of increase in March. Individually, the annualized increases were 2.4 percent for rent, 2.1 percent for OER and 3.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through April, the big three index is up 3.1 percent, down from 3.3 percent for the 12 months through March. The price index for core services as a whole rose 1.7 percent for the 12 months ending in April, down from 2.4 percent for the 12 months through March.