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Behind the Numbers: PCE Inflation Update, May 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 rose an annualized 1.2 percent in May after declining an annualized 5.4 percent in April. The price index for PCE excluding food and energy rose at a 1.1 percent annualized rate, compared with an annualized 4.6 percent decrease a month earlier. Prices for energy goods and services declined sharply, while food prices rose at a robust pace.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.5 percent in May, the same as a month earlier.

Over the six months ending in May, the trimmed mean averaged an annualized 1.9 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of −0.2 percent and 0.4 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in May, up from 1.9 percent in April. The 12-month inflation rate for headline PCE was 0.5 percent, down from 0.6 percent in April, while the 12-month inflation rate for PCE excluding food and energy was steady at 1.0 percent.

Gasoline Prices Fall, Poised for Rebound

The price index for gasoline and other motor fuel fell 3.5 percent in May after dropping 20.4 percent in April. The gasoline price index alone subtracted about 0.5 annualized percentage points from May’s headline inflation rate. Among other energy components, the price indexes for fuel oil and electricity services fell 6.3 percent and 0.8 percent, respectively, while the price index for natural gas services rose 0.8. Taken as a whole, the prices of energy goods and services declined 1.7 percent for the month.

The price index for gasoline is down 34.7 percent for the 12 months ending in May; it had been down 32.6 percent for the 12 months ending in April. Compared with May 2019, the price indexes for electricity and natural gas are down 0.7 percent and 1.8 percent, respectively, while the price index for fuel oil is down 37.8 percent. The price index for energy goods and services as a whole is down 18.5 percent over the 12 months.

After May’s 3.5 percent decline, the price index for gasoline is likely to show a large increase when PCE data for June are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 9.5 percent increase in June, before seasonal adjustment. But the typical seasonal pattern for June—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 11.5 percent seasonally adjusted gain. A price increase of that magnitude would contribute about 1.8 annualized percentage points to June’s headline PCE inflation rate.

Food Prices Record Another Sharp Gain

The price index for food and beverages purchased for off-premises consumption rose at a 10.4 percent annualized rate in May after increasing at a 33.2 percent rate in April. Underlying the increase in the aggregate was a sharp increase in the prices of less-processed food items, which rose an annualized 35.2 percent. Prices of more-processed food items rose a more moderate annualized 1.9 percent.

The price index for food as a whole is up 4.5 percent over the 12 months ending in May. The 12-month increase in the aggregate reflects a 6.8 percent increase in the prices of less-processed items and a 3.5 percent increase in the prices of more-processed items.

Prices for Core Goods Down, Services Up in May

Prices for core goods fell an annualized 1.9 percent in May after declining an annualized 9.3 percent in April.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 29.7 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from May’s core rate. At the other end of the spectrum, the price index for furniture (up an annualized 15.1 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to May’s core rate.

For the 12 months ending in May, prices for core goods are down 1.6 percent, compared with a 1.4 percent decline for the 12 months ending in April.

Prices for core services, meanwhile, rose an annualized 2.2 percent in May after recording a 3.0 percent annualized decline in April. Among components experiencing outsized changes, the price index for physician services (down an annualized 4.8 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from May’s core rate. The price index for social assistance (up an annualized 14.0 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.2 annualized percentage points to May’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 3.6 percent annualized rate in May, compared with a 2.4 percent rate of increase in April. Individually, the annualized increases were 3.3 percent for rent, 3.1 percent for OER and 5.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through May, the big three index is up 3.2 percent, compared with 3.1 percent for the 12 months through April. The price index for core services as a whole rose 1.9 percent for the 12 months ending in May, up from 1.8 percent for the 12 months through April.