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Behind the Numbers: PCE Inflation Update, June 2020

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 4.5 percent in June after rising an annualized 1.4 percent in May. The price index for PCE excluding food and energy rose at a 2.5 percent annualized rate, compared with an annualized 1.9 percent increase a month earlier. Prices for food and energy rose at a robust pace.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 1.7 percent in June, compared with a 1.5 percent rate in May.

Over the six months ending in June, the trimmed mean averaged an annualized 1.8 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of −0.1 percent and 0.3 percent, respectively.

The 12-month trimmed mean inflation rate was 1.8 percent in June, down from a revised 1.9 percent in May. The 12-month inflation rate for headline PCE was 0.8 percent, up from 0.5 percent in May, while the 12-month inflation rate for PCE excluding food and energy was 0.9 percent, down from 1.0 percent in May.

As usual, the June PCE release incorporates the Bureau of Economic Analysis’ annual revision to the National Income and Product Accounts. This annual revision affected data from 2015 through the first quarter of 2020. The revision’s impact on headline, core and trimmed mean PCE inflation was relatively minor. Average annualized inflation over the revision period changed by no more than 0.03 percentage points for any of the three inflation series.

Gasoline Prices Rise, Poised for Further Gain

The price index for gasoline and other motor fuel rose 12.0 percent in June after dropping 3.5 percent in May. The gasoline price index alone contributed about 1.8 annualized percentage points to June’s headline inflation rate. Among other energy components, the price index for fuel oil rose 10.2 percent, while the price index for electricity services fell 0.3 percent. The price index for natural gas services was unchanged for the month.

The price index for gasoline is down 23.3 percent for the 12 months ending in June; it had been down 33.5 percent for the 12 months ending in May. Compared with June 2019, the price indexes for fuel oil and natural gas are down 29.9 percent and 0.2 percent, respectively, while the price index for electricity is up 0.1 percent. The price index for energy goods and services as a whole is down 12.8 percent over the 12 months.

After June’s sharp increase, the price index for gasoline is likely to show another large gain when PCE data for July are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 5.8 percent increase in July, before seasonal adjustment. But the typical seasonal pattern for July—what we would expect given normal changes in supply-and-demand conditions—amounts to about a 0.7 percent decrease, making the DOE data consistent with a roughly 6.5 percent seasonally adjusted gain. A price increase of that magnitude would contribute about 1.1 annualized percentage points to July’s headline PCE inflation rate.

Food Prices Record Another Sharp Gain

The price index for food and beverages purchased for off-premises consumption rose at a 6.4 percent annualized rate in June after increasing at a 10.0 percent rate in May. Underlying the increase in the aggregate were sharp increases in the prices of both less-processed food items (up an annualized 15.0 percent) and more-processed food items (up an annualized 3.4 percent).

The price index for food as a whole is up 5.2 percent over the 12 months ending in June. The 12-month increase in the aggregate reflects a 9.0 percent increase in the prices of less-processed items and a 3.7 percent increase in the prices of more-processed items.

Prices for Core Goods and Services Up in June

Prices for core goods rose an annualized 1.8 percent in June after being close to unchanged in May.

Among core goods, the price index for computer software and accessories (down an annualized 24.0 percent) had the largest negative impact on core inflation, subtracting about 0.3 annualized percentage points from June’s core rate. At the other end of the spectrum, the price index for men’s and boys’ clothing (up an annualized 32.4 percent) had the largest positive impact, contributing about 0.2 annualized percentage points to June’s core rate.

For the 12 months ending in June, prices for core goods are down 1.7 percent, compared with a 1.6 percent decline for the 12 months ending in May.

Prices for core services, meanwhile, rose an annualized 2.7 percent in June after recording a 2.6 percent annualized increase in May. Among components experiencing outsized changes, the price index for communication (down an annualized 4.9 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from June’s core rate. The price index for financial service charges, fees and commissions (up an annualized 13.6 percent) had the largest positive impact among components experiencing outsized changes, contributing about 0.4 annualized percentage points to June’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 2.3 percent annualized rate in June, compared with a 3.6 percent rate of increase in May. Individually, the annualized increases were 1.4 percent for rent, 1.1 percent for OER and 7.6 percent for dining out (more formally, “other purchased meals”).

For the 12 months through June, the big three index is up 3.0 percent, compared with 3.2 percent for the 12 months through May. The price index for core services as a whole rose 1.8 percent for the 12 months ending in June, identical to its increase for the 12 months through May.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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