The Bureau of Economic Analysis reported Wednesday that the personal consumption expenditures price index rose 0.4 percent in February, a pickup from January’s 0.3 percent. Goods prices jumped 0.7 percent, led by a 1.1 percent surge in durables. Recreational goods and vehicles were up 2.2 percent. On the surface, this looks like a troubling inflation report that should give the Federal Reserve pause.
But look beneath the surface, and a very different picture emerges. Measures designed to capture the underlying trend in inflation — the ones that strip out the noise of a few categories behaving badly — actually improved in February.
One of the best measures of underlying inflation is the Dallas Fed’s 16 percent trimmed mean. This measure lops off the biggest movers on both ends of the price distribution each month, leaving just the broad middle. In February, the one-month annualized trimmed mean fell to 1.82 percent from 2.71 percent in January. That’s a sharp deceleration. The six-month annualized rate slipped below two percent to 1.99 percent, its lowest reading since March 2021. The 12-month rate continued its steady descent, falling to 2.33 percent, also the lowest since 2021.
We also look to the Cleveland Fed’s median PCE, which isolates the single price change sitting at the midpoint of the distribution. The year-over-year median fell to 2.79 percent in February from 2.89 percent in January, extending a decline that has brought it down from above 3.4 percent last summer. On a six-month annualized basis, median PCE inflation fell to 2.25 percent, its lowest reading since April 2021.
What these two measures are telling us is straightforward: the February acceleration in headline and core PCE was driven by outliers, not by a broad-based pickup in price pressures. A handful of categories — recreational goods, clothing, other durables — printed big numbers. But the typical price change in the economy actually got smaller.
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