Dallas Fed October Trimmed Mean PCE Falls For The Month But Still Higher on Year

The Dallas Fed Trimmed Mean PCE for October showed the annualized rate of inflation at 4.2%, a slowdown from the extreme 4.9% in September but still elevated. The Federal Reserve favors the trimmed mean as it excludes the most extreme price changes in consumer goods and services each month.

US Trimmed Mean Inflation Rate

Looking out longer term , the six-month view annualized rate rose to 3.3% from 3.0%. The 12 month estimate rose to 2.6% from 2.3%. The numbers are lower than the traditional CPI and CPI core rates which aligns with the transitory argument.

Trimmed inflation items lower:

  • Televisions (prices down 23.8% m/m annualized),
  • household linens (-26.3%), jewelry (-21.6%)
  • major household appliances (-10.4%).

Trimmed inflation items higher:

  • Fuel oil (+303.3%),
  • Used autos (+128.6%)
  • Gasoline (+102.8%)
  • Electricity (+23.8%)
  • Owner-occupied homes (+5.2%)

What is the Trimmed Mean PCE inflation rate

The Trimmed Mean PCE inflation rate is an alternative measure of core inflation in the price index for personal consumption expenditures (PCE). It is calculated by staff at the Dallas Fed, using data from the Bureau of Economic Analysis (BEA).

The Dallas Fed calculates the trimmed mean inflation rate each month using price and expenditure data for 178 PCE components published by the Bureau of Economic Analysis. Price changes from the prior month are calculated for all the components and sorted from lowest to highest. In March, for example, the extremes were the price indexes for tax preparation, which declined at a 62 percent annualized rate, and for watches, which rose at a 138 percent annualized rate.

Once the price changes are sorted, the lowest 24 percent (using components’ expenditure weights) and highest 31 percent are excluded, or “trimmed.” The trimmed mean inflation rate for the month is the weighted average—using the expenditure weights—of the price changes left in the middle.

The 24 and 31 percent trimming proportions were chosen to produce an inflation series that came closest to a measure of all-items PCE trend inflation. The proportions have been fixed since the trimmed mean’s last major revision in 2009.

Source: Dallas Fed