Behind the Numbers: PCE Inflation Update, October 2020

The headline, or all-items, PCE price index was unchanged in October after rising an annualized 1.9 percent in September. The price index for PCE excluding food and energy was likewise effectively unchanged after rising an annualized 2.2 percent a month earlier. Prices for food and energy were up modestly.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 0.6 percent in October, compared with a 1.0 percent rate in September.

Over the six months ending in October, the trimmed mean averaged an annualized 1.6 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.8 percent and 2.7 percent, respectively.

The 12-month trimmed mean inflation rate was 1.7 percent in October, down from a revised 1.8 percent in September. The 12-month inflation rate for headline PCE was 1.2 percent, down from 1.4 percent in September, while the 12-month inflation rate for PCE excluding food and energy was 1.4 percent, down from 1.6 percent in September.

Energy Prices Up Modestly

The price index for gasoline and other motor fuel fell 0.6 percent in October after increasing 0.1 percent in September. Among other energy components, the price indexes for fuel oil and natural gas services fell 0.3 percent and 0.7 percent, respectively, while the price index for electricity services rose 1.2 percent. The price index for energy goods and services as a whole rose a modest 0.1 percent, compared with a 0.7 percent increase in September.

The price index for gasoline was down 18.1 percent for the 12 months ending in October; it had been down 15.4 percent for the 12 months ending in September. Compared with October 2019, the price index for fuel oil was down 28.2 percent, while the price indexes for electricity and natural gas were up 1.3 percent and 1.8 percent, respectively. The price index for energy goods and services as a whole was down 9.6 percent over the 12 months.

After October’s modest decline, the price index for gasoline is likely to show an even larger drop 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 2.3 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 a negligible change in price, making the DOE data consistent with a 2.3 percent decrease in the seasonally adjusted gasoline price index. A decline of that magnitude would subtract about 0.3 annualized percentage points off November’s headline inflation rate.

Food Prices Rise in October

The price index for food and beverages purchased for off-premises consumption rose at a 1.4 percent annualized rate in October after declining at a 3.5 percent rate in September. Underlying the increase in the aggregate were similar-sized increases in the prices of less-processed food items (up an annualized 1.3 percent) and more-processed food items (up an annualized 1.5 percent).

The price index for food as a whole was up 3.9 percent over the 12 months ending in October. The 12-month increase in the aggregate reflects a 5.0 percent increase in the prices of less-processed items and a 3.4 percent increase in the prices of more-processed items.

Prices for Core Goods Fall, Services Slow

Prices for core goods fell an annualized 3.4 percent in October after falling an annualized 1.7 percent in September.

Among core goods, the price index for men’s and boys’ clothing (down an annualized 30.6 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from October’s core rate. At the other end of the spectrum, the price index for new light trucks (up an annualized 8.6 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to October’s core rate.

For the 12 months ending in October, prices for core goods were down 0.3 percent, compared with a 0.1 percent decline through September.

Prices for core services, meanwhile, rose an annualized 1.1 percent in October after recording a 3.6 percent annualized increase in September. Among components experiencing outsized changes, the price index for the expenditures of nonprofit institutions serving households (down an annualized 5.3 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from October’s core rate. The price index for motor vehicle rental (up an annualized 105.8 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.1 annualized percentage points to October’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 2.8 percent annualized rate in October, compared with a 2.3 percent rate of increase in September. Individually, the annualized increases were 1.9 percent for rent, 2.7 percent for OER and 3.9 percent for dining out (more formally, “other purchased meals”).

For the 12 months through October, the big three index was up 2.9 percent, identical to its increase for the 12 months through September. The price index for core services as a whole rose 2.0 percent for the 12 months ending in October, down from 2.1 percent for the 12 months through September.