Behind the Numbers: PCE Inflation Update, November 2020
The headline, or all-items, PCE price index was effectively unchanged in November, as it was in October. The price index for PCE excluding food and energy was likewise effectively unchanged as the prices of core goods rose while the prices of core services declined by a negligible amount. Prices for energy goods and services as a whole were up moderately, while food prices declined.
The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 0.5 percent in November, compared with a 1.0 percent rate in October.
Over the six months ending in November, the trimmed mean averaged an annualized 1.6 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.5 percent and 2.3 percent, respectively.
The 12-month trimmed mean inflation rate was 1.7 percent in November, down from a revised 1.8 percent in October. The 12-month inflation rate for headline PCE was 1.1 percent, down from 1.2 percent in October, while the 12-month inflation rate for PCE excluding food and energy was steady at 1.4 percent.
Gasoline Prices Down, Other Energy Components Up
The price index for gasoline and other motor fuel fell 0.4 percent in November after declining 0.6 percent in October. Prices for the other major energy components were all up for the month. The price index for fuel oil rose 3.6 percent, while the price indexes for electricity services and natural gas services rose 0.5 percent and 3.1 percent, respectively. The price index for energy goods and services as a whole rose 0.4 percent, compared with a 0.1 percent increase in October.
The price index for gasoline was down 19.4 percent for the 12 months ending in November; it had been down 18.1 percent for the 12 months ending in October. Compared with November 2019, the price index for fuel oil was down 26.4 percent, while the price indexes for electricity and natural gas were up 1.6 percent and 4.4 percent, respectively. The price index for energy goods and services as a whole was down 9.9 percent over the 12 months.
After two months of modest declines, the price index for gasoline is likely to show a sharp increase when PCE data for December are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 3.2 percent increase in December, before seasonal adjustment. The typical seasonal pattern for December—what we would expect given normal changes in supply-and-demand conditions—amounts to a 4.6 percent decline, making the DOE data consistent with a 7.8 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 1.5 annualized percentage points to December’s headline inflation rate.
Food Prices Decline in November
The price index for food and beverages purchased for off-premises consumption fell at a 1.7 percent annualized rate in November after rising at a 1.4 percent rate in October. Underlying the decrease in the aggregate were a negligible increase in the prices of less-processed food items (up an annualized 0.2 percent) and sharp decline in the prices of more-processed food items (down an annualized 2.5 percent).
The price index for food as a whole was up 3.7 percent over the 12 months ending in November. The 12-month increase in the aggregate reflects a 5.0 percent increase in the prices of less-processed items and a 3.1 percent increase in the prices of more-processed items.
Prices for Core Goods Rise, Services Flat
Prices for core goods rose an annualized 1.4 percent in November after falling an annualized 3.5 percent in October.
Among core goods, the price index for jewelry (down an annualized 29.7 percent) had the largest negative impact on core inflation, subtracting about 0.2 annualized percentage points from November’s core rate. At the other end of the spectrum, the price index for computer software and accessories (up an annualized 31.1 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to November’s core rate.
For the 12 months ending in November, prices for core goods were down 0.1 percent, compared with a 0.3 percent decline through October.
Prices for core services, meanwhile, fell a negligible 0.3 percent, annualized, in November after rising an annualized 1.6 percent in October. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 28.6 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.9 annualized percentage points from November’s core rate. The price index for motor vehicle leasing (up an annualized 100.9 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.4 annualized percentage points to November’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 0.9 percent annualized rate in November, compared with a 2.8 percent rate of increase in October. November’s 0.9 percent rate of increase was the slowest for the big three index since October 2010. Individually, the annualized increases were 0.5 percent for rent, 0.3 percent for OER and 3.2 percent for dining out (more formally, “other purchased meals”).
For the 12 months through November, the big three index was up 2.8 percent, down from a 2.9 percent increase for the 12 months through October. The price index for core services as a whole rose 1.9 percent for the 12 months ending in November, down from a 2.0 percent increase for the 12 months through October.