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Behind the Numbers: PCE Inflation Update, November 2019

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 1.9 percent in November after increasing an annualized 2.9 percent in October. The price index for PCE excluding food and energy rose an annualized 1.7 percent, a comparable increase to a month earlier. Prices for energy goods and services rose modestly, while food prices were close to unchanged for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.2 percent in November, the same as a month earlier.

Over the six months ending in November, the trimmed mean averaged an annualized 2.1 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 1.6 percent and 1.9 percent, respectively.

The 12-month trimmed mean inflation rate was 2.0 percent in November, unchanged from October. The 12-month inflation rate for headline PCE ticked up to 1.5 percent from 1.4 in October, while the 12-month inflation rate for PCE excluding food and energy ticked down to 1.6 percent from 1.7 percent in October.

Energy Prices Up in November

The price index for gasoline and other motor fuel rose 1.1 percent in November after increasing 3.6 percent in October. The gasoline price index alone contributed about 0.2 annualized percentage points to November’s headline inflation rate. Among other energy components, the price indexes for electricity services and natural gas services rose 0.3 percent and 1.1 percent, respectively, while the price index for fuel oil rose 1.4 percent. Taken as a whole, the prices of energy goods and services rose 0.8 percent for the month.

The price index for gasoline is down 1.3 percent for the 12 months ending in November; it had been down 7.4 percent for the 12 months ending in October. Compared with November 2018, the price indexes for electricity and natural gas are up 0.5 percent and 1.1 percent, respectively, while the price index for fuel oil is down 6.7 percent. The price index for energy goods and services as a whole is down 0.7 percent over the 12 months.

The price index for gasoline is likely to show a further increase when PCE data for December are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 1.9 percent decrease in December, before seasonal adjustment. The typical seasonal pattern for December—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 4.3 percent decrease, making the DOE data consistent with a roughly 2.4 percent seasonally adjusted increase. A price increase of that magnitude would contribute about 0.6 annualized percentage points to December’s headline PCE inflation rate.

Food Prices Close to Unchanged

The price index for food and beverages purchased for off-premises consumption was close to unchanged in November, rising an annualized 0.5 percent. The negligible increase follows a 1.9 percent annualized increase in October.

Underlying the slight change in the aggregate were roughly offsetting moves in the prices of less-processed and more-processed food items. The former fell an annualized 1.6 percent, while the latter—which makes up a larger share of overall food expenditures—rose an annualized 1.2 percent.

The price index for food as a whole is up 0.9 percent over the 12 months ending in November. The 12-month increase in the aggregate reflects a 0.8 percent increase in the prices of less-processed items and a 1.0 percent increase in the prices of more-processed food items.

Core Goods Prices Down, Services Prices Up

Prices for core goods fell an annualized 1.4 percent in November after rising an annualized 1.1 percent in October.

Among core goods, the price index for computer software and accessories (down an annualized 28.7 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from November’s core rate. At the other end of the spectrum, the price index for women’s and girls’ clothing (up an annualized 16.6 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to November’s core rate.

For the 12 months ending in November, prices for core goods are down 0.5 percent, compared with a 0.3 percent decline for the 12 months ending in October.

Prices for core services, meanwhile, rose at a 2.7 percent annualized rate in November after recording a 1.9 percent annualized increase in October. Among components experiencing outsized changes, the price index for air transportation (down an annualized 20.4 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.2 annualized percentage points from November’s core rate. The price index for the final consumption expenditures of nonprofit institutions serving households (up an annualized 7.7 percent) had the largest positive impact, contributing about 0.3 annualized percentage points to November’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 2.7 percent annualized rate in November, compared with a 2.1 percent rate of increase in October. Individually, the annualized increases were 3.1 percent for rent, 2.9 percent for OER and 1.8 percent for dining out (more formally, “other purchased meals”).

For the 12 months through November, the big three index is up 3.3 percent, compared with a 3.4 percent increase for the 12 months through October. The price index for core services as a whole rose 2.3 percent for the 12 months ending in November, unchanged from October.