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Behind the Numbers: PCE Inflation Update, August 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 4.9 percent in August after increasing an annualized 4.9 percent in July. The price index for PCE excluding food and energy rose at a 4.1 percent annualized rate after increasing an annualized 3.9 percent a month earlier. Prices for energy goods and services rose, and food prices posted another robust increase.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.8 percent in August, compared with a 3.1 percent rate in July.

Over the six months ending in August, the trimmed mean averaged an annualized 2.6 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 6.2 percent and 5.6 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in August, unchanged from July. The 12-month inflation rate for headline PCE was 4.3 percent, up from 4.2 percent in July, while the 12-month inflation rate for PCE excluding food and energy was steady at 3.6.

Energy Prices Rise

The price index for gasoline and other motor fuel rose a seasonally adjusted 2.8 percent in August after rising 2.4 percent in July. Prices for the other major energy components were mixed, with the price indexes for electricity and natural gas rising 1.0 percent and 1.6 percent, respectively, and the price index for fuel oil declining 2.1 percent. The price index for energy goods and services as a whole rose 1.9 percent in August after rising 1.7 percent in July.

The price index for gasoline was up 42.5 percent for the 12 months ending in August; it had been up 41.6 percent for the 12 months ending in July. Compared with August 2020, the price index for fuel oil was up 33.2 percent, while the price indexes for electricity and natural gas were up 5.2 percent and 21.1 percent, respectively. The price index for energy goods and services as a whole was up 24.9 percent over the 12 months.

After August’s 2.8 percent increase, the price index for gasoline is likely to show a smaller gain when PCE data for September are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 0.5 percent increase in September before seasonal adjustment. The typical seasonal pattern for September—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 0.9 percent price decline, making the DOE data consistent with a 1.4 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 0.3 annualized percentage points to September’s headline inflation rate.

Food Prices Record Another Robust Gain

The price index for food and beverages purchased for off-premises consumption rose at a 4.8 percent annualized rate in August after rising at a 7.9 percent rate in July. The large jump in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 9.2 percent) and more-processed food items (up an annualized 3.1 percent).

The price index for food as a whole was up 2.8 percent over the 12 months ending in August. The 12-month increase in the aggregate reflects a 6.3 percent rise in the prices of less-processed items and a 1.5 percent increase in the prices of more-processed items.

Prices for Core Goods Up Strongly

Prices for core goods rose an annualized 6.1 percent in August after increasing an annualized 2.3 percent in July.

Among core goods, the price index for used light trucks (down an annualized 12.5 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from August’s core rate. At the other end of the spectrum, the price index for furniture (up an annualized 30.8 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to August’s core rate.

For the 12 months ending in August, prices for core goods were up 4.0 percent, identical to their increase for the 12 months ending in July.

Prices for core services, meanwhile, rose an annualized 3.3 percent in August after increasing an annualized 4.6 percent in July. Among components experiencing outsized changes, the price index for hotels and motels (down an annualized 33.2 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.3 annualized percentage points from August’s core rate. The price index for the consumption expenditures of nonprofit institutions serving households (up an annualized 19.9 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.6 annualized percentage points to August’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 4.7 percent annualized rate in August, compared with a 4.9 percent rate in July. Individually, the annualized increases were 3.8 percent for rent, 3.1 percent for OER and 8.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through August, the big three index was up 3.3 percent, compared with a 3.1 percent increase for the 12 months through July. The price index for core services as a whole rose 3.5 percent for the 12 months ending in August, identical to its increase for the 12 months through July.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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