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Behind the Numbers: PCE Inflation Update, January 2022

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 7.1 percent in January after increasing an annualized 6.5 percent in December. The price index for PCE excluding food and energy rose at a 6.4 percent annualized rate after increasing an annualized 6.5 percent a month earlier. Prices for energy goods and services rose despite a modest decline in gasoline prices, while food prices recorded another sharp increase.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 6.7 percent in January, compared with a 4.6 percent rate in December.

Over the six months ending in January, the trimmed mean averaged an annualized 4.6 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 6.2 percent and 5.2 percent, respectively.

The 12-month trimmed mean inflation rate was 3.5 percent in January, up from 3.1 percent in December. The 12-month inflation rate for headline PCE was 6.1 percent, up from 5.8 percent in December, while the 12-month inflation rate for PCE excluding food and energy was 5.2 percent, versus 4.9 percent a month earlier.

Energy Prices Rise Despite Small Gasoline Decline

The price index for gasoline and other motor fuel fell a seasonally adjusted 0.8 percent in January after rising 1.4 percent in December. Prices for the other major energy components were mixed, with the fuel oil and electricity indexes up 9.5 percent and 4.2 percent, respectively, and the natural gas index down 0.5 percent. The price index for energy goods and services as a whole rose 1.1 percent in January after rising 0.9 percent in December.

The price index for gasoline was up 36.5 percent for the 12 months ending in January; it had been up 47.8 percent for the 12 months ending in December. Compared with January 2021, the price index for fuel oil was up 46.5 percent, while the price indexes for electricity and natural gas were up 10.8 percent and 23.8 percent, respectively. The price index for energy goods and services as a whole was up 25.9 percent over the 12 months.

After January’s slight decline, the price index for gasoline is likely to show a sharp increase when PCE data for February are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 5.5 percent increase in February before seasonal adjustment. The typical seasonal pattern for February—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 1.2 percent price decline, making the DOE data consistent with a 6.7 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 2.0 annualized percentage points to February’s headline inflation rate.

Food Prices Up Sharply

The price index for food and beverages purchased for off-premises consumption rose at an 11.0 percent annualized rate in January after increasing at a 3.9 percent rate in December. The increase in the aggregate reflects large increases in the prices of both more-processed food items (up an annualized 13.4 percent) and less-processed food items (up an annualized 5.0 percent).

The price index for food as a whole was up 6.7 percent over the 12 months ending in January. The 12-month increase in the aggregate reflects a 10.3 percent rise in the prices of less-processed items and a 5.3 percent increase in the prices of more-processed items.

Core Goods, Services Prices Climb

Prices for core goods rose an annualized 12.2 percent in January after increasing an annualized 8.7 percent in December.

Among core goods, the price index for televisions (down an annualized 15.5 percent) had the largest negative impact, subtracting less than 0.1 annualized percentage points from January’s core rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 16.7 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to January’s core rate.

For the 12 months ending in January, prices for core goods were up 7.3 percent, compared with a 6.8 percent increase for the 12 months ending in December.

Prices for core services, meanwhile, rose an annualized 4.3 percent in January after increasing an annualized 5.7 percent in December. Among components experiencing outsized changes, the price index for air transportation (down an annualized 57.3 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.7 annualized percentage points from January’s core rate. The price index for owner-occupied stationary homes (up an annualized 5.2 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to January’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 6.3 percent annualized rate in January, compared with a 5.9 percent rate in December. Individually, the annualized increases were 6.7 percent for rent, 5.2 percent for OER and 8.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through January, the big three index was up 4.9 percent, compared with a 4.6 percent increase for the 12 months through December. The price index for core services as a whole rose 4.4 percent for the 12 months ending in January, compared with a 4.2 percent increase for the 12 months through December.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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