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Behind the Numbers: PCE Inflation Update, May 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 5.5 percent in May after increasing an annualized 8.0 percent in April. The price index for PCE excluding food and energy rose at a 5.9 percent annualized rate after increasing an annualized 8.7 percent a month earlier. Prices for energy goods and services as a whole were flat for the month, as a decline in the price index for gasoline and other motor fuel was offset by increases in the prices of other energy components. Food prices posted another brisk increase, driven mainly by prices for less-processed food items.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.8 percent in May, compared with a 2.4 percent rate in April.

Over the six months ending in May, the trimmed mean averaged an annualized 2.1 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 5.3 percent and 4.6 percent, respectively.

The 12-month trimmed mean inflation rate was 1.9 percent in May, up from 1.8 percent in April. The 12-month inflation rate for headline PCE was 3.9 percent, up from 3.6 percent in April, while the 12-month inflation rate for PCE excluding food and energy was 3.4 percent, up from 3.1 percent a month earlier.

Gasoline Prices Fall

The price index for gasoline and other motor fuel fell a seasonally adjusted 0.7 percent in May after declining 1.3 percent in April. Prices for the other major energy components rose, with the price indexes for electricity and natural gas rising 0.3 percent and 1.7 percent, respectively, and the price index for fuel oil rising 2.1 percent. The price index for energy goods and services as a whole was essentially unchanged in May, compared with a 0.2 percent decrease in April.

The price index for gasoline was up 56.7 percent for the 12 months ending in May; it had been up 52.3 percent for the 12 months ending in April. Compared with May 2020, the price index for fuel oil was up 53.3 percent, while the price indexes for electricity and natural gas were up 4.2 percent and 14.5 percent, respectively. The price index for energy goods and services as a whole was up 27.4 percent over the 12 months.

After May’s decline, the price index for gasoline is likely to show a healthy 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 2.4 percent increase in June, before seasonal adjustment. The typical seasonal pattern for June—what we would expect given normal changes in supply-and-demand conditions—amounts to a 0.3 percent decline, making the DOE data consistent with a 2.7 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 0.7 annualized percentage points to June’s headline inflation rate.

Prices for Less-Processed Food Items Up Sharply

The price index for food and beverages purchased for off-premises consumption rose at a 3.8 percent annualized rate in May after rising at a 4.3 percent rate in April. The increase in the aggregate mainly reflects an increase in the prices of less-processed food items, which were up an annualized 15.4 percent; prices of more-processed food items were essentially unchanged from April.

The price index for food as a whole was up 0.4 percent over the 12 months ending in May. The 12-month increase in the aggregate reflects a 0.6 percent rise in the prices of less-processed items and a 0.3 percent increase in the prices of more-processed items.

Prices for Core Goods, Services Up Strongly

Prices for core goods rose an annualized 11.2 percent in May after increasing an annualized 16.2 percent in April. April’s one-month increase was the sharpest since the mid-1970s; May’s jump would be (aside from April’s) the sharpest since 1980.

Among core goods, the price index for prescription drugs (down an annualized 4.1 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from May’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 107.3 percent) had the largest positive impact, contributing about 1.0 annualized percentage point to May’s core rate. All motor vehicles (new and used, cars and trucks), together with motor vehicle rental service prices, combined to contribute about 2.0 annualized percentage points to May’s core inflation rate.

For the 12 months ending in May, prices for core goods were up 4.2 percent, compared with a 3.3 percent increase through April.

Prices for core services, meanwhile, rose an annualized 3.9 percent in May after increasing an annualized 5.9 percent in April. Among components experiencing outsized changes, the price index for air transportation (down an annualized 23.0 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 financial service charges, fees and commissions (up an annualized 12.4 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.3 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 4.2 percent annualized rate in May, compared with a 2.9 percent rate of increase in April. Individually, the annualized increases were 3.0 percent for rent, 3.8 percent for OER and 6.3 percent for dining out (more formally, “other purchased meals”).

For the 12 months through May, the big three index was up 2.6 percent, identical to its increase for the 12 months through April. The price index for core services as a whole rose 3.1 percent for the 12 months ending in May, compared with a 3.0 percent increase for the 12 months through April.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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