Cyclical and Acyclical Core PCE Inflation

Cyclical and Acyclical Core PCE Inflation updates data on the contributions to core personal consumption expenditures from cyclical and acyclical components, based on the methods described in Mahedy and Shapiro (2017).

The personal consumption expenditures price index (PCEPI) is one measure of U.S. inflation that is considered particularly useful for identifying underlying inflation trends. It tracks the change in prices of a particular basket of goods and services purchased by consumers throughout the economy. The “core” measure of PCEPI excludes food and energy products, whose prices tend to be volatile.

The data on this page divide the categories of core PCE inflation into cyclical and acyclical components. Cyclical components include those categories where prices tend to be more sensitive to overall economic conditions. Acyclical components include those categories that are more sensitive to industry-specific factors.

To determine which core PCE categories are more cyclical or acyclical, the Mahedy-Shapiro method estimates a Phillips curve model that relates the changes in prices for a category to the unemployment gap—the gap between the national unemployment rate and its long-term or natural rate—from 1985 to 2007. If the relationship between the unemployment gap and the category’s inflation rate is negative and statistically significant, the category is considered cyclical. If not, it is considered acyclical. Details of the methodology are described in the downloadable data files.

The figures show the cyclical and acyclical core PCE inflation series as well as the contribution of each measure to overall core PCE inflation. Due to the large size of health-care services within the acyclical measure and its dependence on administered prices (see Clemens, Gottlieb, and Shapiro 2014, 2016), the contribution of acyclical inflation is further divided between health-care services and non-health-care services.

Chart 1: Cyclical and acyclical core PCE inflation

Chart 1 shows the two inflation series, cyclical components and acyclical components, over time. Gray bars indicate NBER recession dates.

Chart 2: Cyclical and Acyclical Contributions to Core PCE inflation

Chart 2 shows monthly core PCE price inflation as a combination of cyclical (blue) and acyclical (green) components, based on the Mahedy-Shapiro estimation method.

Chart 3: Health-Care Services Contribution to Core PCE inflation

Chart 3 further divides the acyclical portion of core PCE price inflation in Chart 2 to identify the portion related to health-care services (green) versus the portion unrelated to health-care services (yellow).

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). 

Clemens, Jeff, Josh Gottlieb, and Adam Shapiro. 2014. “How Much Do Medicare Cuts Reduce Inflation?” FRBSF Economic Letter 2014-28 (September 22). 

Clemens, Jeff, Josh Gottlieb and Adam Shapiro. 2016. “Medicare Payment Cuts Continue to Restrain Inflation.” FRBSF Economic Letter 2016-15 (May 9). 

Download Data

Cyclical and Acyclical Core PCE data (Excel document, 36 kb)