Behind the Numbers: PCE Inflation Update, October 2019

The headline, or all-items, PCE price index rose an annualized 2.3 percent October, following negligible changes in each of the prior two months. Sharp increases in the prices of gasoline and other energy items accounted for much of October’s headline increase. The price index for PCE excluding food and energy rose at a 1.0 percent annualized rate following a 0.6 percent annualized increase a month earlier. Food prices rose moderately for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.6 percent in October following an annualized 1.4 percent a month earlier.

Over the six months ending in October, the trimmed mean averaged an annualized 1.9 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 1.3 percent and 1.7 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in October, unchanged from September. The 12-month inflation rate for headline PCE was unchanged at 1.3, while the 12-month inflation rate for PCE excluding food and energy ticked down to 1.6 percent from 1.7 percent in September.

Gasoline Prices Up in October

The price index for gasoline and other motor fuel rose 3.6 percent in October after falling 2.4 percent in September. The gasoline price index alone contributed about 0.9 annualized percentage points to October’s headline inflation rate. Among other energy components, the price indexes for electricity services and natural gas services rose 1.6 percent and 2.4 percent, respectively, while the price index for fuel oil rose 0.8 percent. Taken as a whole, the prices of energy goods and services rose 2.6 percent for the month.

The price index for gasoline is down 7.4 percent for the 12 months ending in October; it had been down 8.2 percent for the 12 months ending in September. Compared with October 2018, the price indexes for electricity and natural gas are up 0.4 percent and 0.2 percent, respectively, while the price index for fuel oil is down 10.6 percent. The price index for energy goods and services as a whole is down 4.2 percent over the 12 months.

The price index for gasoline is likely to show a further modest increase when PCE data for November are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 1.1 percent decrease in November, before seasonal adjustment. The typical seasonal pattern for November—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 2.1 percent decrease, making the DOE data consistent with a roughly 1.1 percent seasonally adjusted increase. A price increase of that magnitude would contribute about 0.3 annualized percentage points to November’s headline PCE inflation rate.

Food Prices Rise Moderately

The price index for food and beverages purchased for off-premises consumption rose an annualized 1.9 percent in October. The increase follows a negligible 0.5 percent annualized increase in September.

Underlying the moderate increase in the aggregate was a sharp increase in the prices of less-processed food items, which rose an annualized 8.5 percent. Prices for more-processed food items were close to unchanged, falling a scant 0.6 percent at an annualized rate.

The price index for food as a whole is up 1.1 percent over the 12 months ending in October. In a rare coincidence, the 12-month increase reflects 1.1 percent increases in the prices of both less-processed and more-processed food items.

Core Goods Prices Rebound, Services Prices Rise Modestly

Prices for core goods rose an annualized 1.0 percent in October, after falling an annualized 3.1 percent in September.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 32.7 percent) had the largest negative impact on core inflation, subtracting about 0.6 annualized percentage points from October’s core inflation rate. At the other end of the spectrum, the price index for prescription drugs (up an annualized 23.7 percent) had the largest positive impact, contributing about 0.8 annualized percentage points to October’s core rate.

For the 12 months ending in October, prices for core goods are down 0.3 percent, compared with a 0.4 percent decline for the 12 months ending in September.

Prices for core services, meanwhile, rose at a modest 1.0 percent annualized rate in October, after recording a 1.8 percent annualized increase in September. Among components experiencing outsized changes, the price index for nonprofit hospital services (up an annualized 7.2 percent) had the biggest positive impact on ex-food-and-energy inflation, contributing around 0.4 annualized percentage points to October’s core inflation rate. The price index for the final consumption expenditures of nonprofit institutions serving households (down an annualized 14.8 percent) had the largest negative impact, subtracting about 0.6 annualized percentage points from October’s core inflation 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 2.1 percent annualized rate in October, compared with a 3.4 percent rate of increase in September. Individually, the annualized increases were 1.7 percent for rent, 2.2 percent for OER and 2.3 percent for dining out (more formally, “other purchased meals”). The one-month increase in rent was its smallest since 2011; the increase in OER was its smallest since 2014.

For the 12 months through October, the big three index is up 3.4 percent, compared with a 3.5 percent increase for the 12 months through September. The price index for core services as a whole rose 2.2 percent for the 12 months ending in October, down from a 2.3 percent increase for the 12 months through September.