Behind the numbers: PCE inflation update, February 2023

The headline, or all-items, PCE price index rose an annualized 3.2 percent in February after increasing an annualized 7.1 percent in January. The price index for PCE excluding food and energy rose at a 3.7 percent annualized rate after increasing an annualized 6.4 percent a month earlier. Prices for energy goods and services as a whole declined. Food prices rose.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 4.0 percent in February, compared with a 5.8 percent rate in January.

Over the six months ending in February, the trimmed mean averaged an annualized 4.4 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 4.0 percent and 4.5 percent, respectively.

The 12-month trimmed mean inflation rate was 4.6 percent in February, unchanged from January. The 12-month inflation rate for headline PCE was 5.0 percent, down from 5.3 percent in January, while the 12-month inflation rate for PCE excluding food and energy was 4.6 percent versus 4.7 percent a month earlier.

Energy prices mixed, but down on net

The price index for gasoline and other motor fuel rose a seasonally adjusted 0.9 percent in February after increasing 2.3 percent in January. Prices for the other major energy components were mixed, with the price index for electricity up 0.5 percent and the price indexes for fuel oil and natural gas services down 7.9 percent and 8.0 percent, respectively. The price index for energy goods and services as a whole fell 0.4 percent in February after increasing 2.0 percent in January.

The price index for gasoline was down 1.7 percent for the 12 months ending in February; it had been up 4.0 percent for the 12 months ending in January. Compared with February 2022, the price index for fuel oil was up 9.2 percent, while the price indexes for electricity and natural gas were up 13.6 percent and 17.8 percent, respectively. The price index for energy goods and services as a whole was up 5.1 percent over the 12 months.

After February’s increase, the price index for gasoline is likely to show a large decline 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 1.0 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 5.8 percent increase, making the DOE data consistent with a 4.8 percent decrease in the seasonally adjusted gasoline price index. A decrease of that size would subtract about 1.3 annualized percentage points from March’s headline inflation rate.

Food prices rise

The price index for food and beverages purchased for off-premises consumption rose at a 2.6 percent annualized rate in February after increasing at a 4.9 percent rate in January. The increase in the aggregate reflects an increase in the prices of more-processed food items (up an annualized 3.9 percent) that more than offset a decrease in the prices of less-processed items (down an annualized 0.7 percent).

The price index for food as a whole was up 9.7 percent over the 12 months ending in February. The 12-month increase in the aggregate reflects a 5.8 percent rise in the prices of less-processed items and a 11.3 percent increase in the prices of more-processed items.

Core goods, services prices up

Prices for core goods rose an annualized 1.2 percent in February after increasing an annualized 5.9 percent in January.

Among core goods, the price index for used light trucks (down an annualized 28.6 percent) had the largest negative impact, subtracting about 0.4 annualized percentage points from February’s core rate. At the other end of the spectrum, the price index for women’s and girls’ clothing (up an annualized 15.0 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to February’s core rate.

For the 12 months ending in February, prices for core goods were up 2.3 percent, compared with 2.8 percent for the 12 months ending in January.

Prices for core services, meanwhile, rose an annualized 4.6 percent in February after increasing an annualized 6.6 percent in January. Among components experiencing outsized changes, the price index for the final consumption expenditures of nonprofit institutions (down an annualized 10.9 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 8.7 percent) had the largest positive impact, contributing about 1.0 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 an 8.7 percent annualized rate in February, compared with an annualized 8.4 percent in January. Individually, the annualized increases were 9.5 percent for rent, 8.7 percent for OER and 8.1 percent for dining out (more formally, “other purchased meals”).

For the 12 months through February, the big three index was up 8.1 percent, compared with a 7.8 percent increase for the 12 months through January. The price index for core services as a whole rose 5.5 percent for the 12 months ending in February, compared with a 5.4 percent increase for the 12 months through January.