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Behind the Numbers: PCE Inflation Update, February 2021

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 2.8 percent in February after rising an annualized 4.1 percent in January. The price index for PCE excluding food and energy rose at a 1.0 percent annualized rate after rising an annualized 3.0 percent a month earlier. Prices for energy goods and services as a whole were up sharply, reflecting another steep increase in the price index for gasoline and other motor fuel. Food prices were also up for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.8 percent in February, compared with a 1.5 percent rate in January.

Over the six months ending in February, the trimmed mean averaged an annualized 1.4 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.3 percent and 1.6 percent, respectively.

The 12-month trimmed mean inflation rate was 1.6 percent in February, unchanged from a revised 1.6 percent in January. The 12-month inflation rate for headline PCE was 1.6 percent, up from 1.4 percent in January, while the 12-month inflation rate for PCE excluding food and energy was 1.4 percent, down from 1.5 percent a month earlier.

Gasoline Prices Rise Sharply Again

The price index for gasoline and other motor fuel rose 6.4 percent in February after rising 7.4 percent in January. The gasoline and other motor fuels price index alone contributed about 1.3 annualized percentage points to February’s headline inflation rate. Prices for the other major energy components were also up for the month. The price index for fuel oil rose 9.9 percent, while the price indexes for electricity and natural gas rose 0.7 percent and 1.6 percent, respectively. The price index for energy goods and services as a whole rose 3.8 percent, compared with a 3.4 percent increase in January.

The price index for gasoline was up 0.8 percent for the 12 months ending in February; it had been down 8.4 percent for the 12 months ending in January. Compared with February 2019, the price index for fuel oil was up 2.7 percent, while the price indexes for electricity and natural gas were up 1.6 percent and 6.7 percent, respectively. The price index for energy goods and services as a whole was up 1.2 percent over the 12 months.

After February’s sharp increase, the price index for gasoline is likely to show an even sharper gain when PCE data for March are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 11.6 percent increase in March, before seasonal adjustment. The typical seasonal pattern for March—what we would expect given normal changes in supply-and-demand conditions—amounts to a 2.4 percent increase, making the DOE data consistent with a 9.2 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 1.9 annualized percentage points to March’s headline inflation rate.

Food Prices Up in February

The price index for food and beverages purchased for off-premises consumption rose at a 2.5 percent annualized rate in February after falling at a 0.9 percent rate in January. Underlying the increase in the aggregate were increases in the prices of both less-processed food items (up an annualized 4.5 percent) and more-processed food items (up an annualized 1.7 percent).

The price index for food as a whole was up 3.3 percent over the 12 months ending in February. The 12-month increase in the aggregate reflects a 4.4 percent increase in the prices of less-processed items and a 2.9 percent increase in the prices of more-processed items.

Prices for Core Goods Down, Services Up

Prices for core goods fell an annualized 2.5 percent in February after rising an annualized 4.9 percent in January.

Among core goods, the price index for jewelry (down an annualized 42.9 percent) had the largest negative impact, subtracting about 0.3 annualized percentage points from February’s core rate. At the other end of the spectrum, the price index for other recreational vehicles (up an annualized 27.1 percent) had the largest positive impact, contributing about 0.1 annualized percentage points to February’s core rate.

For the 12 months ending in February, prices for core goods were up 0.1 percent, compared with a 0.3 percent increase through January.

Prices for core services, meanwhile, rose 2.4 percent, annualized, in February after rising an annualized 2.3 percent in January. Among components experiencing outsized changes, the price index for consumption expenditures by nonprofit institutions (down an annualized 15.2 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.6 annualized percentage points from February’s core rate. The price index for nonprofit hospital services (up an annualized 15.0 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.9 annualized percentage points to February’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 3.2 percent annualized rate in February, compared with a 2.5 percent rate of increase in January. Individually, the annualized increases were 2.4 percent for rent, 3.2 percent for OER and 3.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through February, the big three index was up 2.6 percent, identical to its increase for the 12 months through January. The price index for core services as a whole rose 1.9 percent for the 12 months ending in February, identical to its increase for the 12 months through January.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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