Trimmed Mean PCE Inflation Rate

Behind the Numbers: PCE Inflation Update, September 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 2.0 percent in September after rising an annualized 3.9 percent in August. The price index for PCE excluding food and energy rose at a 2.2 percent annualized rate, compared with an annualized 4.0 percent increase a month earlier. Prices for energy goods and services rose, while prices for food fell.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 0.9 percent in September, compared with a 2.5 percent rate in August.

Over the six months ending in September, 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 1.7 percent and 1.8 percent, respectively.

The 12-month trimmed mean inflation rate was 1.9 percent in September, unchanged from August. The 12-month inflation rate for headline PCE was 1.4 percent, up from 1.3 percent in August, while the 12-month inflation rate for PCE excluding food and energy was 1.5 percent, up from 1.4 percent in August.

Energy Prices Rise in September

The price index for gasoline and other motor fuel rose 0.1 percent in September after increasing 2.0 percent in August. Among other energy components, the price index for fuel oil fell 5.2 percent, while the price indexes for electricity and natural gas services rose 0.9 percent and 4.2 percent, respectively. The price index for energy goods and services as a whole rose 0.7 percent, similar to its increase in August.

The price index for gasoline was down 15.4 percent for the 12 months ending in September; it had been down 16.8 percent for the 12 months ending in August. Compared with September 2019, the price index for fuel oil was down 27.2 percent, while the price indexes for electricity and natural gas were up 0.7 percent and 3.8 percent, respectively. The price index for energy goods and services as a whole was down 8.1 percent over the 12 months.

After September’s small increase, the price index for gasoline is likely to show only a negligible change 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 1.1 percent decrease in October, before seasonal adjustment. The typical seasonal pattern for October—what we would expect given normal changes in supply-and-demand conditions—also amounts to about a 1.1 percent decrease, making the DOE data consistent with essentially no change in the seasonally adjusted gasoline price index.

Food Prices Record Another Decline

The price index for food and beverages purchased for off-premises consumption fell at a 3.5 percent annualized rate in September after declining at a 1.3 percent rate in August. Underlying the decrease in the aggregate were similar-sized declines in the prices of less-processed food items (down an annualized 4.2 percent) and more-processed food items (down an annualized 3.2 percent).

The price index for food as a whole was up 3.9 percent over the 12 months ending in September. The 12-month increase in the aggregate reflects a 5.4 percent increase in the prices of less-processed items and a 3.3 percent increase in the prices of more-processed items.

Prices for Core Goods Fall, Services Rise

Prices for core goods fell an annualized 1.1 percent in September after rising an annualized 6.1 percent in August. The September decline breaks a string of fairly robust increases going back to June.

Among core goods, the price index for computer software and accessories (down an annualized 50.2 percent) had the largest negative impact on core inflation, subtracting about 0.6 annualized percentage points from September’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 63.4 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to September’s core rate.

For the 12 months ending in September, prices for core goods were essentially unchanged.

Prices for core services, meanwhile, rose an annualized 3.4 percent in September after recording a 3.3 percent annualized increase in August. Among components experiencing outsized changes, the price index for nonprofit hospital services (down an annualized 4.6 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.3 annualized percentage points from September’s core rate. The price index for the expenditures of nonprofit institutions serving households (up an annualized 30.4 percent) had the largest positive impact among components experiencing outsized changes, contributing about 1.0 annualized percentage points to September’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 2.3 percent annualized rate in September, compared with a 1.7 percent rate of increase in August. Individually, the annualized increases were 1.4 percent for rent, 0.7 percent for OER and 7.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through September, the big three index was up 2.9 percent, compared with 3.0 percent for the 12 months through August. The price index for core services as a whole rose 2.1 percent for the 12 months ending in September, up from 1.9 percent for the 12 months through August.