Behind the numbers: PCE inflation update, January 2023

The headline, or all-items, PCE price index rose an annualized 7.7 percent in January after increasing an annualized 2.4 percent in December. The price index for PCE excluding food and energy rose at a 7.1 percent annualized rate after increasing an annualized 4.6 percent a month earlier. Prices for food and energy rose.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 6.3 percent in January, compared with a 4.0 percent rate in December.

Over the six months ending in January, the trimmed mean averaged an annualized 4.8 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 4.1 percent and 5.1 percent, respectively.

The 12-month trimmed mean inflation rate was 4.6 percent in January, down from 4.7 percent in December. The 12-month inflation rate for headline PCE was 5.4 percent, up from 5.3 percent in December, while the 12-month inflation rate for PCE excluding food and energy was 4.7 percent versus 4.6 percent a month earlier.

Energy prices rise

The price index for gasoline and other motor fuel rose a seasonally adjusted 2.3 percent in January after decreasing 6.9 percent in December. Prices for the other major energy components were mixed, with the price index for fuel oil down 1.2 percent and the price indexes for electricity and natural gas services up 0.5 percent and 6.7 percent, respectively. The price index for energy goods and services as a whole rose 2.0 percent in January after decreasing 3.6 percent in December.

The price index for gasoline was up 4.0 percent for the 12 months ending in January; it had been up 0.9 percent for the 12 months ending in December. Compared with January 2022, the price index for fuel oil was up 27.7 percent, while the price indexes for electricity and natural gas were up 11.7 percent and 30.0 percent, respectively. The price index for energy goods and services as a whole was up 9.6 percent over the 12 months.

After January’s increase, the price index for gasoline is likely to show a similar gain 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 3.4 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 0.7 percent increase, making the DOE data consistent with a 2.7 percent increase in the seasonally adjusted gasoline price index. An increase of that size would contribute about 0.7 annualized percentage points to February’s headline inflation rate.

Food prices up

The price index for food and beverages purchased for off-premises consumption rose at a 4.9 percent annualized rate in January after increasing at a 4.9 percent rate in December. The increase in the aggregate reflects increases in the prices of both less-processed food items (up an annualized 2.3 percent) and more-processed items (up an annualized 6.0 percent).

The price index for food as a whole was up 11.1 percent over the 12 months ending in January. The 12-month increase in the aggregate reflects a 7.8 percent rise in the prices of less-processed items and a 12.4 percent increase in the prices of more-processed items.

Core goods, services prices up sharply

Prices for core goods rose an annualized 6.0 percent in January after being roughly unchanged in December.

Among core goods, the price index for used light trucks (down an annualized 20.9 percent) had the largest negative impact, subtracting about 0.3 annualized percentage points from January’s core rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 28.2 percent) had the largest positive impact, contributing about 0.9 annualized percentage points to January’s core rate.

For the 12 months ending in January, prices for core goods were up 2.8 percent, compared with 3.4 percent for the 12 months ending in December.

Prices for core services, meanwhile, rose an annualized 7.5 percent in January after increasing an annualized 6.4 percent in December. Among components experiencing outsized changes, the price index for net health insurance (down an annualized 8.1 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from January’s core rate. The price index for owner-occupied stationary homes (up an annualized 8.4 percent) had the largest positive impact, contributing about 1.0 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 an 8.4 percent annualized rate in January, identical to its increase in December. Individually, the annualized increases were 9.2 percent for rent, 8.4 percent for OER and 8.0 percent for dining out (more formally, “other purchased meals”).

For the 12 months through January, the big three index was up 7.8 percent, compared with a 7.6 percent increase for the 12 months through December. The price index for core services as a whole rose 5.4 percent for the 12 months ending in January, compared with a 5.1 percent increase for the 12 months through December.