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Behind the Numbers: PCE Inflation Update, June 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 6.3 percent in June after increasing an annualized 6.2 percent in May. The price index for PCE excluding food and energy rose at a 5.5 percent annualized rate after increasing an annualized 6.7 percent a month earlier. Prices for energy goods and services rose, and food prices posted their largest one-month increase since last spring.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.3 percent in June, compared with a 3.1 percent rate in May.

Over the six months ending in June, the trimmed mean averaged an annualized 2.2 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 5.6 percent and 4.9 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in June, up from 1.9 percent in May. The 12-month inflation rate for headline PCE was 4.0 percent, unchanged from May, while the 12-month inflation rate for PCE excluding food and energy was 3.5 percent, up from 3.4 percent a month earlier.

BEA’s Annual Revision

The PCE data in the latest release reflect the results of the Bureau of Economic Analysis’ (BEA) annual update to the National Income and Product Accounts. These revisions—which often incorporate better source data or methodological improvements—can affect inflation data extending back many years. The trimmed mean, which is constructed from detailed BEA data, will also generally reflect these changes.

For the various inflation series, the most significant methodological change in this year’s revision is the BEA’s adoption of improved methods for measuring spending on housing services (which include expenditures for rent and owners’ equivalent rent). While this change did not affect the price data for these components, it did result in changes to their expenditure weights going back to 2002. The impact of these revisions on headline, core and trimmed mean PCE inflation was quite small, however—average annualized inflation rates over the period 2002–20 differ from their prerevision estimates by about 0.007 to 0.015 percentage points.

Energy Prices Rise

The price index for gasoline and other motor fuel rose a seasonally adjusted 2.5 percent in June after declining 0.7 percent in May. Prices for the other major energy components were mixed, with the price indexes for fuel oil and natural gas rising 2.9 percent and 1.7 percent, respectively, and the price index for electricity falling 0.3 percent. The price index for energy goods and services as a whole rose 1.5 percent in June, after being flat in May.

The price index for gasoline was up 44.8 percent for the 12 months ending in June; it had been up 55.5 percent for the 12 months ending in May. Compared with June 2020, the price index for fuel oil was up 44.5 percent, while the price indexes for electricity and natural gas were up 3.8 percent and 15.6 percent, respectively. The price index for energy goods and services as a whole was up 24.2 percent over the 12 months.

After June’s 2.5 percent increase, the price index for gasoline is likely to show a similar-sized gain when PCE data for July are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 2.3 percent increase in July, before seasonal adjustment. The typical seasonal pattern for July—what we would expect given normal changes in supply-and-demand conditions—amounts to essentially no change in price, making the DOE data consistent with a 2.3 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 0.6 annualized percentage points to July’s headline inflation rate.

Prices for Less-Processed Food Items Rise Sharply Again

The price index for food and beverages purchased for off-premises consumption rose at a 9.4 percent annualized rate in June after rising at a 4.0 percent rate in May. The increase is the largest since last spring and, prior to 2020, the largest since early 2011. The large jump in the aggregate mainly reflects an increase in the prices of less-processed food items, which were up an annualized 25.9 percent; prices of more-processed food items were up an annualized 3.6 percent.

The price index for food as a whole was up 0.9 percent over the 12 months ending in June. The 12-month increase in the aggregate reflects a 2.0 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 7.1 percent in June after increasing an annualized 13.2 percent in May. For the first six months of 2021, core goods prices were up an annualized 7.3 percent, their fastest six-month rate of increase since 1980.

Among core goods, the price index for computer software and accessories (down an annualized 19.7 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from June’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 141.7 percent) had the largest positive impact, contributing about 1.3 annualized percentage point to June’s core rate. All motor vehicles (new and used, cars and trucks), together with motor vehicle leasing and rental service prices, combined to contribute about 2.3 annualized percentage points to June’s core inflation rate.

For the 12 months ending in June, prices for core goods were up 4.2 percent, compared with a 4.3 percent increase through May.

Prices for core services, meanwhile, rose an annualized 4.9 percent in June after increasing an annualized 4.2 percent in May. Among components experiencing outsized changes, the price index for nonprofit hospital services (down an annualized 5.2 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.3 annualized percentage points from June’s core rate. The price index for nonprofit institutions’ consumption expenditures (up an annualized 24.4 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.8 annualized percentage points to June’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 4.9 percent annualized rate in June, compared with a 4.3 percent rate of increase in May. Individually, the annualized increases were 2.9 percent for rent, 3.9 percent for OER and 8.6 percent for dining out (more formally, “other purchased meals”).

For the 12 months through June, the big three index was up 2.9 percent, compared with a 2.7 percent increase for the 12 months through May. The price index for core services as a whole rose 3.3 percent for the 12 months ending in June, compared with a 3.1 percent increase for the 12 months through May.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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