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Behind the Numbers: PCE Inflation Update, October 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 7.8 percent in October after increasing an annualized 4.3 percent in September. The price index for PCE excluding food and energy rose at a 5.2 percent annualized rate after increasing an annualized 3.0 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 4.2 percent in October, compared with a 4.9 percent rate in September.

Over the six months ending in October, the trimmed mean averaged an annualized 3.3 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 5.8 percent and 4.8 percent, respectively.

The 12-month trimmed mean inflation rate was 2.6 percent in October, up from 2.3 percent in September. The 12-month inflation rate for headline PCE was 5.0 percent, up from 4.4 percent in September, while the 12-month inflation rate for PCE excluding food and energy was 4.1 percent, versus 3.7 percent a month earlier.

Energy Prices Rise

The price index for gasoline and other motor fuel rose a seasonally adjusted 6.1 percent in October after increasing 1.2 percent in September. Prices for the other major energy components also rose, with the electricity and natural gas indexes up 1.8 percent and 6.6 percent, respectively, and fuel oil index rising 12.3 percent. The price index for energy goods and services as a whole rose 4.9 percent in October after increasing 1.3 percent in September.

The price index for gasoline was up 49.6 percent for the 12 months ending in October; it had been up 42.0 percent for the 12 months ending in September. Compared with October 2020, the price index for fuel oil was up 59.1 percent, while the price indexes for electricity and natural gas were up 6.5 percent and 28.1 percent, respectively. The price index for energy goods and services as a whole was up 30.2 percent over the 12 months.

After October’s 6.1 percent increase, the price index for gasoline is likely to show a similar gain when PCE data for November are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 3.2 percent increase in November before seasonal adjustment. The typical seasonal pattern for November—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 3.2 percent price decline, making the DOE data consistent with a 6.4 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 1.7 annualized percentage points to November’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 10.0 percent annualized rate in October after increasing at a 13.4 percent rate in September. The large jump in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 12.5 percent) and more-processed food items (up an annualized 9.0 percent).

The price index for food as a whole was up 4.8 percent over the 12 months ending in October. The 12-month increase in the aggregate reflects an 8.8 percent rise in the prices of less-processed items and a 3.2 percent increase in the prices of more-processed items.

Prices for Core Goods Up Sharply Again

Prices for core goods rose an annualized 10.7 percent in October after increasing an annualized 2.7 percent in September.

Among core goods, the price index for jewelry (down an annualized 21.6 percent) had the largest negative impact, subtracting about 0.2 annualized percentage points from October’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 63.2 percent) had the largest positive impact, contributing about 0.7 annualized percentage points to October’s core rate.

For the 12 months ending in October, prices for core goods were up 5.5 percent, compared with a 4.4 percent increase for the 12 months ending in September.

Prices for core services, meanwhile, rose an annualized 3.2 percent in October, identical to their increase in September. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 15.0 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.5 annualized percentage points from October’s core rate. The price index for owner-occupied stationary homes (up an annualized 5.4 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.6 annualized percentage points to October’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 6.7 percent annualized rate in October, compared with a 5.9 percent rate in September. Individually, the annualized increases were 5.1 percent for rent, 5.4 percent for OER and 10.6 percent for dining out (more formally, “other purchased meals”).

For the 12 months through October, the big three index was up 3.9 percent, compared with a 3.6 percent increase for the 12 months through September. The price index for core services as a whole rose 3.6 percent for the 12 months ending in October, compared with a 3.4 percent increase for the 12 months through September.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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