Price Chains and the Origins of PCE Price Growth

Off-the-shelf growth accounting is typically used to assess the sources of economic growth, and recently established approaches to measuring trade in value added are typically used to decompose domestic and foreign content in bundles of final demand. This paper merges the two approaches to measure the sources of personal consumption expenditures (PCE) price change in the United States, parse out the contribution of foreign prices across the price chain, and trace price change to changes in prices in the factors of production. Between 1997 and 2021, PCE prices grew by about 1.8% per year, on average. Direct imports to PCE accounted only for a small portion of PCE price change (about 1.3% of the total change, reflecting the small share of imports in PCE), but including upstream imported intermediate inputs across the entire production chain reveals that foreign prices embedded in PCE accounted for almost 11% of PCE price change. By linking value-added prices to prices in the BEA–BLS industry-level production account, price growth accounting reveals that prices for labor inputs accounted for a large share of PCE price growth but that total factor productivity growth played an important role in dampening PCE price growth over the period.