Glossary
PCE price index
The Commerce Department’s measure of prices for personal consumption spending, and the inflation gauge behind the Fed’s 2% target.
On this page
The personal consumption expenditures (PCE) price index measures how prices change for the goods and services that US households consume. It is published monthly by the Bureau of Economic Analysis (BEA), part of the Commerce Department, in its Personal Income and Outlays report. Markets watch it closely because the Federal Reserve defines its 2% inflation goal in terms of PCE, not the better-known Consumer Price Index.
How it works
The BEA builds PCE from the same spending data that feed GDP, then prices that basket month by month. Two versions get the headlines:
- Headline PCE covers everything.
- Core PCE excludes food and energy, whose prices swing for reasons that monetary policy cannot do much about. Fed officials lean on core PCE when judging the underlying trend.
PCE versus CPI
Both measure consumer inflation, but they differ in three ways:
- Scope. PCE includes spending made on households' behalf, such as employer-paid health insurance and Medicare. CPI covers only out-of-pocket spending by urban consumers.
- Weights. Housing carries a much larger weight in CPI; health care is larger in PCE.
- Formula. PCE uses a chained formula whose weights shift as people substitute toward cheaper goods; CPI's basket changes more slowly.
As a result PCE has tended to run a few tenths of a percentage point below CPI. It arrives later in the month, after CPI and the Producer Price Index, so economists can often estimate it in advance.