Supply- and Demand-Driven PCE Inflation

Supply- and Demand-Driven PCE Inflation updates data on the contributions to personal consumption expenditures (PCE) inflation from supply-driven versus demand-driven components. This tool is intended to track the changes in the extent to which either supply or demand factors are responsible for inflation levels. The methodology used for developing these data is detailed in Shapiro (2022b) and outlined in Shapiro (2022a).

The data on this page divide inflation rates into supply- and demand-driven groups of spending categories in the PCE basket of goods and services in the U.S. economy. Demand-driven categories are identified as those where an unexpected change in price moves in the same direction as the change in quantity in a given month. Supply-driven categories are identified as those where unexpected changes in price and quantity move in opposite directions. This methodology accounts for the evolving impact of supply- versus demand-driven factors on inflation from month to month.

The data isolate the unexpected component of the change in prices and quantities because they are likely to represent a shift in demand or supply rather than longer-run factors such as technological improvements, cost-of-living adjustments to wages, or demographic changes. The figures reflect both the overall headline PCE measure and the “core” PCE measure that excludes more volatile food and energy prices.

Extracting the unexpected component of the monthly change in price and quantity for each category is an iterative process using 10-year-window rolling regressions to compare how predicted values for both price and quantity in a particular month compare to actual values for that month. If the actual values of price and quantity are both above or both below their predicted values, the category is labeled as “demand-driven.” If the difference between actual and predicted values are of opposite signs, the category is labeled as “supply-driven” in that month. If either of the actual values is close enough to its predicted value that the difference is statistically indistinguishable from zero, the category is labeled as “ambiguous” in that month. The data window then rolls forward one month to repeat the process, continuing the iteration through the last window of data available.

Figure 1 shows the contributions to annualized monthly changes in PCE inflation for headline PCE inflation, and Figure 2 shows the same for core PCE inflation. The bars for each month reflect the contributions from supply-driven (green), demand-driven (blue) inflation, and ambiguous categories.

Figures 3 and 4 show the contributions to year-over-year headline and core PCE inflation, respectively. The contributions for demand-driven, supply-driven, and ambiguous categories are calculated as the 12-month trailing sum of their respective monthly contributions.

Figure 1: Supply- and Demand-Driven Contributions to Annualized Monthly Headline PCE Inflation

Figure 1 divides annualized one-month changes in headline PCE inflation into contributions that can be determined as driven by supply versus demand, with the remainder marked as ambiguous.

Figure 2: Supply- and Demand-Driven Contributions to Annualized Monthly Core PCE Inflation

Figure 2 divides annualized one-month changes in core PCE inflation into contributions that can be determined as driven by supply versus demand, with the remainder marked as ambiguous.

Figure 3: Supply- and Demand-Driven Contributions to Year-over-Year Headline PCE Inflation

Figure 3 divides year-over-year changes in headline PCE inflation into contributions that can be determined as driven by supply and demand, with the remainder marked as ambiguous.

Figure 4: Supply- and Demand-Driven Contributions to Year-over-Year Core PCE Inflation

Figure 4 divides year-over-year changes in core PCE inflation into contributions that can be determined as driven by supply and demand, with the remainder marked as ambiguous.

Note: PCE data are released monthly as part of the Personal Income and Outlays Release of the Bureau of Economic Analysis. Summary statistics on this page will be updated monthly a few days following the release of the data.

References

Mahedy, Tim, and Adam Shapiro. 2017. “What’s Down with Inflation?” FRBSF Economic Letter 2017-35 (November 27).

Shapiro, Adam Hale. 2022a. “A Simple Framework to Monitor Inflation.” FRB San Francisco Working Paper 2020-29.

Shapiro, Adam Hale. 2022b. “How Much Do Supply and Demand Drive Inflation?” FRBSF Economic Letter 2022-15 (June 21).

Download Data

Supply- versus Demand-Driven PCE Inflation data (Excel file, 48 kb)

For related data on core personal consumption expenditures, see Cyclical and Acyclical Core PCE Inflation.