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Behind the Numbers: PCE Inflation Update, March 2021

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 6.4 percent in March after rising an annualized 2.9 percent in February. The price index for PCE excluding food and energy rose at a 4.4 percent annualized rate after rising an annualized 1.1 percent a month earlier. Prices for energy goods and services as a whole were up sharply, reflecting another steep increase in the price index for gasoline and other motor fuel. Food prices were also up for the month.

The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 2.0 percent in March, compared with a 1.9 percent rate in February.

Over the six months ending in March, the trimmed mean averaged an annualized 1.4 percent rate of increase. Over the same period, the headline and core indexes averaged annualized rates of 2.9 percent and 1.9 percent, respectively.

The 12-month trimmed mean inflation rate was 1.7 percent in March, up from 1.6 percent in February. The 12-month inflation rate for headline PCE was 2.3 percent, up from 1.5 percent in February, while the 12-month inflation rate for PCE excluding food and energy was 1.8 percent, up from 1.4 percent a month earlier.

Gasoline Prices Rise in March, Likely to Post Decline in April

The price index for gasoline and other motor fuel rose a whopping 9.1 percent in March after rising 6.4 percent in February. The gasoline and other motor fuels price index alone contributed about 2.0 annualized percentage points to March’s headline inflation rate. Prices for the other major energy components were mostly up for the month. The price indexes for fuel oil and natural gas rose 3.2 percent and 2.5 percent, respectively, while the price index for electricity was unchanged. The price index for energy goods and services as a whole rose 4.9 percent, compared with a 3.9 percent increase in February.

The price index for gasoline was up 22.8 percent for the 12 months ending in March; it had been up 0.8 percent for the 12 months ending in February. Compared with March 2020, the price index for fuel oil was up 22.7 percent, while the price indexes for electricity and natural gas were up 1.8 percent and 11.0 percent, respectively. The price index for energy goods and services as a whole was up 13.1 percent over the 12 months.

After March’s sharp increase, the price index for gasoline is likely to show a small decline when PCE data for April are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 2.1 percent increase in April, before seasonal adjustment. The typical seasonal pattern for April—what we would expect given normal changes in supply-and-demand conditions—amounts to a 3.4 percent increase, making the DOE data consistent with a 1.3 percent decline in the seasonally adjusted gasoline price index. A decline of that magnitude would subtract about 0.3 annualized percentage points off April’s headline inflation rate.

Food Prices Up in March

The price index for food and beverages purchased for off-premises consumption rose at a 2.1 percent annualized rate in March after rising at a 2.5 percent rate in February. The increase in the aggregate mainly reflected an increase in the prices of less-processed food items, which were up an annualized 6.1 percent; prices of more-processed food items were up an annualized 0.7 percent.

The price index for food as a whole was up 2.9 percent over the 12 months ending in March. The 12-month increase in the aggregate reflects a 4.5 percent increase in the prices of less-processed items and a 2.3 percent increase in the prices of more-processed items.

Prices for Core Goods, Services Rise

Prices for core goods rose an annualized 2.2 percent in March after falling an annualized 1.5 percent in February.

Among core goods, the price index for women’s and girls’ clothing (down an annualized 28.2 percent) had the largest negative impact, subtracting about 0.5 annualized percentage points from March’s core rate. At the other end of the spectrum, the price index for other jewelry (up an annualized 95.2 percent) had the largest positive impact, contributing about 0.4 annualized percentage points to March’s core rate.

For the 12 months ending in March, prices for core goods were up 0.8 percent, compared with a 0.1 percent increase through February.

Prices for core services, meanwhile, rose 5.2 percent, annualized, in March after rising an annualized 2.1 percent in February. Among components experiencing outsized changes, the price index for higher-education school lunches (down an annualized 82.0 percent) had the biggest negative impact on ex-food-and-energy inflation, subtracting around 0.1 annualized percentage points from March’s core rate. The price index for financial services charges, fees and commissions (up an annualized 95.7 percent) had the largest positive impact among components experiencing outsized changes, contributing about 2.0 annualized percentage points to March’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 3.0 percent annualized rate in March, compared with a 3.2 percent rate of increase in February. Individually, the annualized increases were 1.8 percent for rent, 2.8 percent for OER and 4.7 percent for dining out (more formally, “other purchased meals”).

For the 12 months through March, the big three index was up 2.6 percent, identical to its increase for the 12 months through February. The price index for core services as a whole rose 2.2 percent for the 12 months ending in March, compared with a 1.8 percent increase for the 12 months through February.

Trimmed Mean PCE Inflation Rate
Trimmed Mean PCE
PCE Inflation Update
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