Households spend less than 5 percent of their PCE basket on gasoline, electricity, and heating but, as seen in the left panel of  - 10 figure 8, the energy price index skyrocketed over the past couple of years, reflecting a surge in crude oil prices after the pandemic recession which was exacerbated by Russia’s invasion of Ukraine.
Turning to the 3-month change (the right panel) energy prices have been declining sharply recently and we expect them to continue to decline this year, reflecting the path of crude oil futures prices and the expectation that unusually elevated gasoline margins will, on average, decline over the remainder of this year. So, what do I take away from all this?