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Trimmed Mean PCE Inflation Rate

Behind the Numbers: PCE Inflation Update, December 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 December after increasing an annualized 7.8 percent in November. The price index for PCE excluding food and energy rose at a 6.1 percent annualized rate after increasing an annualized 5.9 percent a month earlier. Prices for energy goods and services declined, and food prices posted rose.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 3.9 percent in December, compared with a 4.4 percent rate in November.

Over the six months ending in December, the trimmed mean averaged an annualized 3.9 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 5.8 percent and 4.7 percent, respectively.

The 12-month trimmed mean inflation rate was 3.0 percent in December, up from 2.9 percent in November. The trimmed mean last reached 3 percent in December 1991. The 12-month inflation rate for headline PCE was 5.8 percent, up from 5.7 percent in November, while the 12-month inflation rate for PCE excluding food and energy was 4.9 percent, versus 4.7 percent a month earlier.

Gasoline Prices Record Small Decline

The price index for gasoline and other motor fuel fell a seasonally adjusted 0.5 percent in December after rising 6.1 percent in November. Prices for the other major energy components were mixed, with the fuel oil and natural gas indexes down 2.4 percent and 1.2 percent, respectively, while the electricity index rose 0.3 percent. The price index for energy goods and services as a whole fell 0.4 percent in December after increasing 3.6 percent in November.

The price index for gasoline was up 49.5 percent for the 12 months ending in December; it had been up 58.0 percent for the 12 months ending in November. Compared with December 2020, the price index for fuel oil was up 41.0 percent, while the price indexes for electricity and natural gas were up 6.3 percent and 24.1 percent, respectively. The price index for energy goods and services as a whole was up 29.9 percent over the 12 months.

After December’s slight decline, the price index for gasoline is likely to show a slight increase when PCE data for January are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 0.2 percent decrease in January before seasonal adjustment. The typical seasonal pattern for January—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 0.5 percent price decline, making the DOE data consistent with a 0.3 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would have a negligible effect on January’s headline inflation rate.

Food Prices Up

The price index for food and beverages purchased for off-premises consumption rose at a 3.9 percent annualized rate in December after increasing at an 8.3 percent rate in November. The increase in the aggregate reflects a large increase in the prices of more-processed food items (up an annualized 5.9 percent) and a slight decline in the prices of less-processed food items (down an annualized 0.9 percent).

The price index for food as a whole was up 5.7 percent over the 12 months ending in December. The 12-month increase in the aggregate reflects a 9.8 percent rise in the prices of less-processed items and a 4.2 percent increase in the prices of more-processed items.

Prices for Core Goods, Services Rise Sharply

Prices for core goods rose an annualized 9.2 percent in December after increasing an annualized 6.1 percent in November.

Among core goods, the price index for other recreational vehicles (down an annualized 24.7 percent) had the largest negative impact, subtracting about 0.1 annualized percentage points from December’s core rate. At the other end of the spectrum, the price index for used light trucks (up an annualized 45.7 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to December’s core rate.

For the 12 months ending in December, prices for core goods were up 6.8 percent, compared with a 6.1 percent increase for the 12 months ending in November.

Prices for core services, meanwhile, rose an annualized 5.0 percent in December after increasing an annualized 5.9 percent in November. Among components experiencing outsized changes, the price index for motor vehicle rental (down an annualized 47.9 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from December’s core rate. The price index for owner-occupied stationary homes (up an annualized 4.9 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to December’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 5.9 percent annualized rate in December, compared with a 6.3 percent rate in November. Individually, the annualized increases were 4.7 percent for rent, 4.9 percent for OER and 8.9 percent for dining out (more formally, “other purchased meals”).

For the 12 months through December, the big three index was up 4.6 percent, compared with a 4.3 percent increase for the 12 months through November. The price index for core services as a whole rose 4.1 percent for the 12 months ending in December, identical to its increase for the 12 months through November.