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How housing prices have impacted PCE inflation

Two new measures of PCE inflation from the BEA

FRED recently added two new personal consumption expenditures (PCE) price index data series from the US Bureau of Economic Analysis: one excluding the energy and housing categories from the all-items PCE price index and a second one excluding the food, energy, and housing categories. These series are timely additions to FRED’s substantial repository of measures of trend inflation.

The FRED graph above shows these two new PCE price index series from the BEA (blue and red lines), along with the all-items price index (green line). The data are plotted as inflation rates, or percent changes from a year ago.

Between April 2020 (the end of the COVID-19-induced recession) and roughly the last quarter of 2021, the three measures of PCE inflation moved broadly in sync. However, during the better part of 2022, food, energy, and housing prices changed at a different pace from the remaining PCE price categories. Russia’s invasion of Ukraine was a large shock to international energy and food markets, but housing markets are local. So, what happened to those prices?

In short, and paraphrasing Jerome Powell, because rental leases are renewed annually or even less frequently, housing price inflation tends to lag other prices after speedups or slowdowns in overall inflation. This apparent lack of co-movement between the all-items PCE inflation and the other two measures of personal consumption expenditure prices was due to the timing of new housing data, particularly rental prices. This phenomenon has also been visible during other time periods when inflation changed its direction of growth, particularly during the 2007-2009 recession: See this FRED graph with the three PCE series plotted since 1960.

How this graph was created: In FRED, search for and select “Personal Consumption Expenditures: Services Excluding Energy and Housing (Chain-Type Price Index).” From the “Edit Graph” panel, use the “Add Line” tab to search and select “Personal Consumption Expenditures Excluding Food, Energy, and Housing (Chain-Type Price Index).” Repeat the last step to add “Personal Consumption Expenditures: Chain-type Price Index.” Lastly, use the “Edit Lines” tab to change the units into “Percent Change from Year Ago” and click on the “Copy to all” button to apply the change to the other two series in the graph.

Suggested by Diego Mendez-Carbajo.

The Ukraine war’s effects on US commodity prices

US gasoline prices rose sharply after Russia invaded Ukraine in February 2022 and the European Union and the United States imposed economic sanctions. The attention paid to these economic events was certainly warranted: In June 2022, the producer price index (PPI) for gasoline had jumped 85% above what it was a year earlier.

Oil prices were clearly affected, but how do those changes compare with price changes for other commodities? FRED has US price data for a variety of commodities, and the FRED graph above plots the PPI for natural gas, diesel fuel, crude petroleum, gasoline, farm products, and metal products from January 2020 to the latest available data at the time of this writing.

Metal and farm products

The orange and light blue lines in the graph show metal and farm product prices, respectively: These prices barely changed compared with the others, which is quite remarkable for commodities. Keep in mind that these are prices in the United States, and prices closer to the conflict did change more.

Energy commodities

On the other hand, energy markets have typically been more volatile. Before February 2022, diesel, gasoline, oil, and natural gas prices followed similar trends. The price of diesel and gas (both of which are connected to the price of crude oil) immediately increased after Russia invaded Ukraine. However, their paths diverged greatly thereafter. Gas and diesel both peaked in June 2022, but diesel’s PPI was about 109% more than in June 2021 compared with 85% for gasoline. Diesel prices rose higher because diesel fuel is scarcer worldwide: There simply weren’t enough refineries to meet diesel demand, especially after the US and other countries stopped purchasing energy exports from Russia.

These price indices have decreased considerably since then, showing that markets have been able to absorb the upheaval in early 2022.

How this graph was created: In FRED, search for and select “Producer Price Index by Commodity: Fuels and Related Products and Power: Natural Gas, Index 1982=100, Not Seasonally Adjusted.” From the “Edit Graph” menu, click the “Add Line” tab: Search for the producer price index of other commodities, and click “Add data series.” Once all lines have been added, change units to 100 in 2022-02-01 and apply to all. Then, add a user-defined line, with start and end dates on 2022-02-01 with values that go from maximum to minimum value in the graph. Finally, go to the “Format” tab and turn the vertical line black.

Suggested by Hoang Le and Paulina Restrepo-Echavarria.

Seasonality in European vegetable prices

The FRED Blog has discussed how the timing of harvesting seasons results in predictable changes in the prices of fresh crops in the United States. Today, we use data on harmonized consumer prices indexes (HICPs) to compare seasonal upswings and downswings in vegetable prices in different countries across the European Union (EU).

The HICPs are directly comparable across all countries of the EU because they are calculated according to harmonized definitions. So, whether it’s called potato, potatoe, or patata, the product category for vegetables follows the European classification of individual consumption according to purpose (ECOICOP) and by goods and services.

The FRED graph above shows the HICPs for vegetables in four European countries: Poland (the blue line); Spain (the red line); Italy (the green line); and Latvia (the purple line). The data are reported by Eurostat and all four price index series have the same base period of January 2015.

Regular and large increases and decreases in consumer price indexes for vegetables in Poland and Latvia contrast with much smaller upswings and downswings in Spain and Italy. What gives? In Europe, northern countries record, on average, lower temperatures and less direct sunlight than southern countries, so their growing seasons for vegetables are relatively shorter. That makes their overall supply relatively small and drives prices up. At the same time, industrial agriculture in the southern countries supplements regional deficits in water, humidity, and nutrients, increasing their crop yields and driving prices down. In short, the climate conditions during the year have more marked seasonal effects on vegetable prices in those countries with a more constrained local supply. Those seasonal patterns are even more noticeable when we plot the percent change in the price indexes.

How the graph was created: Search FRED for and select “Harmonized Index of Consumer Prices: Vegetables for Poland.” Next, click on the “Edit Graph” button and use the “Add Line” tab to search for and add “Harmonized Index of Consumer Prices: Vegetables for Spain.” Repeat the previous step to add “Harmonized Index of Consumer Prices: Vegetables for Italy” and “Harmonized Index of Consumer Prices: Vegetables for Latvia.”

Suggested by Diego Mendez-Carbajo.

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