An alternative measure of core inflation: the Trimmed Persistence PCE price index

Abstract

I introduce the “trimmed persistence PCE,” a new measure of core inflation in which component prices are weighted according to the time-varying persistence of their price changes. The components of trimmed persistence PCE display less tendency to mechanically pass-through the level of the prior period’s inflation to the current period; thus, the impact of the current stance of monetary policy and real economic factors are more likely to be visible in recent trimmed persistence inflation compared to headline inflation. Trimmed persistence inflation performs comparably to existing popular measures of core inflation in terms of volatility and relationship with economic slack. Model selection procedures confirm trimmed persistence PCE contributes additional information to inflation forecasting models when stacked against other popular measures of core inflation. Applying the new index in a Taylor rule analysis suggests the Fed’s aggressive path of federal funds rate hikes during the pandemic may have achieved appropriately restrictive levels by the fourth quarter of 2022, clearing the way for more measured policy adjustment thereafter as risks of policy overshooting became more salient.

Appendices

Appendices

1.1 Appendix 1: List of PCE components used in calculation

PCE components used in calculating trimmed persistence PCE

Component	Description	Start Date
1	New Domestic Autos	1959-01-31
2	New Foreign Autos	1959-01-31
3	New Light Trucks	1959-01-31
4	Used Autos	1959-01-31
5	Used Light Trucks	1959-01-31
6	Tires	1959-01-31
7	Accessories & Parts	1959-01-31
8	Furniture	1959-01-31
9	Clock/Lamp/Lighting Fixture/Othr HH Decorative Item	1959-01-31
10	Carpets & Other Floor Coverings	1959-01-31
11	Window Coverings	1959-01-31
12	Major Household Appliances	1959-01-31
13	Small Elec Household Appliances	1959-01-31
14	Dishes and Flatware	1959-01-31
15	Nonelectric Cookware & Tableware	1959-01-31
16	Tools, Hardware & Supplies	1959-01-31
17	Outdoor Equipment & Supplies	1959-01-31
18	Televisions	1959-01-31
19	Other Video Equip	1959-01-31
20	Audio Equipment	1959-01-31
21	Audio Discs/Tapes/Vinyl/Permanent Digital Downloads	1959-01-31
22	Video Discs, Tapes & Permanent Digital Downloads	1977-01-31
23	Photographic Equip	1959-01-31
24	Personal Computers/Tablets & Peripheral Equipment	1977-01-31
25	Computer Software & Accessories	1977-01-31
26	Calculators/Typewriters/Othr Info Processing Eqpt	1959-01-31
27	Sporting Equip, Supplies, Guns & Ammunition	1959-01-31
28	Motorcycles	1959-01-31
29	Bicycles & Accessories	1959-01-31
30	Pleasure Boats	1959-01-31
31	Pleasure Aircraft	1959-01-31
32	Other Recreational Vehicles	1959-01-31
33	Recreational Books	1959-01-31
34	Musical Instruments	1959-01-31
35	Jewelry	1959-01-31
36	Watches	1959-01-31
37	Therapeutic Medical Equip	1959-01-31
38	Corrective Eyeglasses & Contact Lenses	1959-01-31
39	Educational Books	1959-01-31
40	Luggage & Similar Personal Items	1959-01-31
41	Telephone and Related Communication Equipment	1959-01-31
42	Cereals	1959-01-31
43	Bakery Products	1959-01-31
44	Beef and Veal	1959-01-31
45	Pork	1959-01-31
46	Other Meats	1959-01-31
47	Poultry	1959-01-31
48	Fish and Seafood	1959-01-31
49	Fresh Milk	1959-01-31
50	Processed Dairy Products	1959-01-31
51	Eggs	1959-01-31
52	Fats and Oils	1959-01-31
53	Fresh Fruit	1959-01-31
54	Fresh Vegetables	1959-01-31
55	Processed Fruits & Vegetables	1959-01-31
56	Sugar and Sweets	1959-01-31
57	Food Products, Not Elsewhere Classified	1959-01-31
58	Coffee, Tea & Other Beverage Mtls	1959-01-31
59	Mineral Waters, Soft Drinks & Vegetable Juices	1959-01-31
60	Spirits	1959-01-31
61	Wine	1959-01-31
62	Beer	1959-01-31
63	Food Produced & Consumed on Farms	1959-01-31
64	Women’s & Girls’ Clothing	1959-01-31
65	Men’s & Boys’ Clothing	1959-01-31
66	Children’s & Infants’ Clothing	1959-01-31
67	Clothing Materials	1959-01-31
68	Standard Clothing Issued to Military Personnel	1959-01-31
69	Shoes & Other Footwear	1959-01-31
70	Gasoline & Other Motor Fuel	1959-01-31
71	Lubricants & Fluids	1959-01-31
72	Fuel Oil	1959-01-31
73	Other Fuels	1959-01-31
74	Prescription Drugs	1959-01-31
75	Nonprescription Drugs	1959-01-31
76	Other Medical Products	1959-01-31
77	Games, Toys & Hobbies	1959-01-31
78	Pets & Related Products	1959-01-31
79	Flowers, Seeds & Potted Plants	1959-01-31
80	Film & Photographic Supplies	1959-01-31
81	Household Cleaning Products	1959-01-31
82	Household Paper Products	1959-01-31
83	Household Linens	1959-01-31
84	Sewing Items	1959-01-31
85	Misc Household Products	1959-01-31
86	Hair/Dental/Shave/Misc Pers Care Prods ex Elec Prod	1959-01-31
87	Cosmetic/Perfumes/Bath/Nail Preparatns & Implements	1959-01-31
88	Elec Appliances for Personal Care	1959-01-31
89	Tobacco	1959-01-31
90	Newspapers & Periodicals	1959-01-31
91	Stationery & Misc Printed Materials	1959-01-31
92	Expenditures Abroad by U.S. Residents	1959-01-31
93	Less: Personal Remittances in Kind to Nonresidents	1959-01-31
94	Rental of Tenant-Occupied Nonfarm Housing	1959-01-31
95	Owner-Occupied Mobile Homes	1959-01-31
96	Owner-Occupied Stationary Homes	1959-01-31
97	Rental Value of Farm Dwellings	1959-01-31
98	Group Housing	1959-01-31
99	Water Supply & Sewage Maintenance	1959-01-31
100	Garbage & Trash Collection	1959-01-31
101	Electricity	1959-01-31
102	Natural Gas	1959-01-31
103	Physician Services	1959-01-31
104	Dental Services	1959-01-31
105	Paramedical Services	1959-01-31
106	Nonprofit Hospitals’ Services to HHs	1959-01-31
107	Proprietary Hospitals	1959-01-31
108	Govt Hospitals	1959-01-31
109	Nursing Homes	1959-01-31
110	Motor Vehicle Maintenance & Repair	1959-01-31
111	Motor Vehicle Leasing	1973-01-31
112	Motor Vehicle Rental	1959-01-31
113	Parking Fees & Tolls	1959-01-31
114	Railway Transportation	1959-01-31
115	Intercity Buses	1959-01-31
116	Taxicabs and Ride Sharing Services	1959-01-31
117	Intracity Mass Transit	1959-01-31
118	Other Road Transportation Service	1959-01-31
119	Air Transportation	1959-01-31
120	Water Transportation	1959-01-31
121	Membership Clubs/Participant Sports Centers	1959-01-31
122	Amusement Parks/Campgrounds/Rel Recral Svcs	1959-01-31
123	Motion Picture Theaters	1959-01-31
124	Live Entertainment, ex Sports	1959-01-31
125	Spectator Sports	1959-01-31
126	Museums & Libraries	1959-01-31
127	Audio-Video, Photographic/Info Process Svcs	1959-01-31
128	Casino Gambling	1959-01-31
129	Lotteries	1959-01-31
130	Pari-Mutuel Net Receipts	1959-01-31
131	Veterinary & Other Services for Pets	1959-01-31
132	Package Tours	1959-01-31
133	Maint/Repair of Rec Vehicles/Sports Eqpt	1959-01-31
134	Elementary & Secondary School Lunches	1959-01-31
135	Higher Education School Lunches	1959-01-31
136	Other Purchased Meals	1959-01-31
137	Alcohol in Purchased Meals	1959-01-31
138	Food Supplied to Civilians	1959-01-31
139	Food Supplied to Military	1959-01-31
140	Hotels and Motels	1959-01-31
141	Housing at Schools	1959-01-31
142	Commercial Banks	1959-01-31
143	Othr Dep Instns/Regulated Invest Companies	1959-01-31
144	Pension Funds	1959-01-31
145	Financial Service Charges, Fees/Commissions	1959-01-31
146	Life Insurance	1959-01-31
147	Net Household Insurance	1959-01-31
148	Net Health Insurance	1959-01-31
149	Net Motor Vehicle/Oth Transportation Insur	1959-01-31
150	Communication	1959-01-31
151	Proprietary & Public Higher Education	1959-01-31
152	Nonprofit Pvt Higher Education Svcs to HHs	1959-01-31
153	Elementary & Secondary Schools	1959-01-31
154	Day Care & Nursery Schools	1959-01-31
155	Commercial & Vocational Schools	1959-01-31
156	Legal Services	1959-01-31
157	Tax Preparation & Other Rel Services	1959-01-31
158	Employment Agcy Services	1959-01-31
159	Other HH Business Services	1959-01-31
160	Labor Organization Dues	1959-01-31
161	Prof Assn Dues	1959-01-31
162	Funeral & Burial Services	1959-01-31
163	Hairdressing Salons & HH Grooming Establishments	1959-01-31
164	Misc HH Care Services	1959-01-31
165	Laundry & Dry Cleaning Services	1959-01-31
166	Clothing Repair, Rental & Alterations	1959-01-31
167	Repair & Hire of Footwear	1959-01-31
168	Child Care	1959-01-31
169	Social Assistance	1959-01-31
170	Social Advocacy/Civic/Social Organizations	1959-01-31
171	Religious Organizations’ Services to HHs	1959-01-31
172	Sales Receipts: Foundatns/Grant Making/Giving Svcs to HH	1959-01-31
173	Domestic Services	1959-01-31
174	Moving, Storage & Freight Services	1959-01-31
175	Repair of Furn, Furnishings/Floor Coverings	1959-01-31
176	Repair of HH Appliances	1959-01-31
177	Other Household Services	1959-01-31
178	Foreign Travel by U.S. Residents	1959-01-31
179	Less: Exps in the US by Nonresidents	1959-01-31
180	Final Consumptn Exps of Nonprofit Instns Serving HH	1959-01-31