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Behind the Numbers: PCE Inflation Update, April 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 7.5 percent in April after increasing an annualized 6.9 percent in March. The price index for PCE excluding food and energy rose at an 8.3 percent annualized rate after increasing an annualized 5.0 percent a month earlier. Core goods prices recorded their largest one-month increase in several decades. Prices for energy goods and services as a whole were down slightly, reflecting a small decline in the price index for gasoline and other motor fuel. Food prices were up sharply for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.4 percent in April, compared with a 2.2 percent rate in March.

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 4.3 percent and 3.4 percent, respectively.

The 12-month trimmed mean inflation rate was 1.8 percent in April, up from 1.7 percent in March. The 12-month inflation rate for headline PCE was 3.6 percent, up from 2.4 percent in March, while the 12-month inflation rate for PCE excluding food and energy was 3.1 percent, up from 1.9 percent a month earlier.

Gasoline Prices Fall in April

The price index for gasoline and other motor fuel fell a seasonally adjusted 1.3 percent in April after rising 9.1 percent in March. Prices for the other major energy components were mixed, with the price indexes for electricity and natural gas rising 1.2 percent and 2.4 percent, respectively, while the price index for fuel oil declined 3.2 percent. The price index for energy goods and services as a whole fell 0.2 percent, compared with a 4.9 percent increase in March.

The price index for gasoline was up 52.3 percent for the 12 months ending in April; it had been up 22.8 percent for the 12 months ending in March. Compared with April 2020, the price index for fuel oil was up 40.7 percent, while the price indexes for electricity and natural gas were up 3.0 percent and 13.0 percent, respectively. The price index for energy goods and services as a whole was up 24.8 percent over the 12 months.

After April’s small decrease, the price index for gasoline is likely to show another small decline 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 4.0 percent increase in May, before seasonal adjustment. The typical seasonal pattern for May—what we would expect given normal changes in supply-and-demand conditions—amounts to a 4.9 percent increase, making the DOE data consistent with a 0.9 percent decline in the seasonally adjusted gasoline price index. A decline of that magnitude would subtract about 0.2 annualized percentage points off May’s headline inflation rate.

Food Prices Up

The price index for food and beverages purchased for off-premises consumption rose at a 4.3 percent annualized rate in April after rising at a 2.1 percent rate in March. The increase in the aggregate mainly reflects an increase in the prices of less-processed food items, which were up an annualized 9.3 percent; prices of more-processed food items were up an annualized 2.4 percent.

The price index for food as a whole was up 0.9 percent over the 12 months ending in April. The 12-month increase in the aggregate reflects a 1.9 percent rise in the prices of less-processed items and a 0.5 percent increase in the prices of more-processed items.

Prices for Core Goods, Services Up Strongly

Prices for core goods rose an annualized 12.8 percent in April after increasing an annualized 3.3 percent in March. The one-month increase is the sharpest since the mid-1970s.

Among core goods, the price index for computer software and accessories (down an annualized 20.5 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from April’s core rate. At the other end of the spectrum, the price index for other used light trucks (up an annualized 138.0 percent) had the largest positive impact, contributing about 1.1 annualized percentage points to April’s core rate.

For the 12 months ending in April, prices for core goods were up 3.0 percent, compared with a 1.0 percent increase through March.

Prices for core services, meanwhile, rose an annualized 6.5 percent in April after increasing an annualized 5.7 percent in March. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 5.4 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from April’s core rate. The price index for nonprofit consumption expenditures (up an annualized 54.6 percent) had the largest positive impact among components experiencing outsized changes, contributing about 1.5 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 2.9 percent annualized rate in April, compared with a 3.0 percent rate of increase in March. Individually, the annualized increases were 2.4 percent for rent, 2.5 percent for OER and 4.3 percent for dining out (more formally, “other purchased meals”).

For the 12 months through April, the big three index was up 2.6 percent, identical to its increase for the 12 months through March. The price index for core services as a whole rose 3.1 percent for the 12 months ending in April, compared with a 2.3 percent increase for the 12 months through March.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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