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Behind the Numbers: PCE Inflation Update, February 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 7.2 percent in February after increasing an annualized 6.7 percent in January. The price index for PCE excluding food and energy rose at a 4.3 percent annualized rate after increasing an annualized 6.0 percent a month earlier.Prices for food and energy rose sharply.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 4.0 percent in February, compared with a 6.5 percent rate in January.

Over the six months ending in February, the trimmed mean averaged an annualized 4.7 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 6.6 percent and 5.2 percent, respectively.

The 12-month trimmed mean inflation rate was 3.6 percent in February, up from 3.5 percent in January. The 12-month inflation rate for headline PCE was 6.4 percent, up from 6.0 percent in January, while the 12-month inflation rate for PCE excluding food and energy was 5.4 percent, versus 5.2 percent a month earlier.

Energy Prices Rise

The price index for gasoline and other motor fuel rose a seasonally adjusted 6.7 percent in February after falling 0.8 percent in January. Prices for the other major energy components were mixed, with the fuel oil and natural gas indexes up 7.7 percent and 1.5 percent, respectively, and the electricity index down 1.1 percent. The price index for energy goods and services as a whole rose 3.7 percent in February after rising 1.1 percent in January.

The price index for gasoline was up 36.9 percent for the 12 months ending in February; it had been up 36.5 percent for the 12 months ending in January. Compared with February 2021, the price index for fuel oil was up 43.6 percent, while the price indexes for electricity and natural gas were up 8.8 percent and 23.8 percent, respectively. The price index for energy goods and services as a whole was up 25.7 percent over the 12 months.

After February’s hefty increase, the price index for gasoline is certain to show an even sharper increase when PCE data for March are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 19.7 percent increase in March before seasonal adjustment. The typical seasonal pattern for March—what we would expect given normal changes in supply-and-demand conditions—amounts to a roughly 1.3 percent price increase, making the DOE data consistent with an 18.4 percent increase in the seasonally adjusted gasoline price index. An increase of that magnitude would contribute about 5.6 annualized percentage points to March’s headline inflation rate.

Food Prices Up Sharply Again

The price index for food and beverages purchased for off-premises consumption rose at an 18.7 percent annualized rate in February after increasing at an 11.0 percent rate in January. The increase in the aggregate reflects large increases in the prices of both less-processed food items (up an annualized 23.8 percent) and more-processed food items (up an annualized 16.7 percent).

The price index for food as a whole was up 8.0 percent over the 12 months ending in February. The 12-month increase in the aggregate reflects an 11.8 percent rise in the prices of less-processed items and a 6.5 percent increase in the prices of more-processed items.

Core Goods, Services Prices Climb

Prices for core goods rose an annualized 6.2 percent in February after increasing an annualized 12.6 percent in January.

Among core goods, the price index for jewelry (down an annualized 50.6 percent) had the largest negative impact, subtracting about 0.5 annualized percentage points from February’s core rate. At the other end of the spectrum, the price index for newspapers and periodicals (up an annualized 85.4 percent) had the largest positive impact, contributing about 0.4 annualized percentage points to February’s core rate.

For the 12 months ending in February, prices for core goods were up 7.9 percent, compared with a 7.3 percent increase for the 12 months ending in January.

Prices for core services, meanwhile, rose an annualized 3.6 percent in February, identical to their rate of increase in January. Among components experiencing outsized changes, the price index for financial service charges, fees and commissions (down an annualized 11.8 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.4 annualized percentage points from February’s core rate. The price index for owner-occupied stationary homes (up an annualized 5.5 percent) had the largest positive impact, contributing about 0.6 annualized percentage points to February’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 5.8 percent annualized rate in February, compared with a 6.3 percent rate in January. Individually, the annualized increases were 7.0 percent for rent, 5.5 percent for OER and 5.4 percent for dining out (more formally, “other purchased meals”).

For the 12 months through February, the big three index was up 5.1 percent, compared with a 4.9 percent increase for the 12 months through January. The price index for core services as a whole rose 4.5 percent for the 12 months ending in February, compared with a 4.3 percent increase for the 12 months through January.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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